question
You are hired by the Council of Economic Advisors (CEA) as an economic consultant. The Chairperson of the CEA tells you that he believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. He wants to know what policy to pursue to increased aggregate output by $300 billion. The best estimate she has for the MPC is 0.8. Which of the following policies should you recommend?
A) increase government purchases by $60 billion
B) increase government purchases by $150 billion
C) cut taxes by $60 billion
D) cut taxes by $60 billion and to increase government purchases by $60 billion
E) none of the above
A) increase government purchases by $60 billion
B) increase government purchases by $150 billion
C) cut taxes by $60 billion
D) cut taxes by $60 billion and to increase government purchases by $60 billion
E) none of the above
answer
A
question
The impact of crowding out may be the least
A) during a deep recession
B) when real GDP is above but close to potential GDP
C) during an expansion
D) when real GDP is below but close to potential GDP
E) when real GDP is equal to potential GDP
A) during a deep recession
B) when real GDP is above but close to potential GDP
C) during an expansion
D) when real GDP is below but close to potential GDP
E) when real GDP is equal to potential GDP
answer
A
question
Which of the following would increase the size of the government purchases multiplier?
A) an increase in the tax rate
B) an increase in the quantity of imports purchased by households from an increase in income
C) a decrease in the amount of consumption spending by households from an increase in income
D) a decrease in the amount saved by households from an increase in income
E) none of the above
A) an increase in the tax rate
B) an increase in the quantity of imports purchased by households from an increase in income
C) a decrease in the amount of consumption spending by households from an increase in income
D) a decrease in the amount saved by households from an increase in income
E) none of the above
answer
D
question
Which of the following is most liquid?
A) a mutual fund share
B) a government bond
C) a corporate bond
D) a dollar bill
E) a house
A) a mutual fund share
B) a government bond
C) a corporate bond
D) a dollar bill
E) a house
answer
D
question
Buffalo Wild Wings wants to raise $80 million to finance the construction of a new store, and the company wishes to raise the funds through direct finance. Which of the following methods could it use?
A) it could sell $80 million in bonds
B) it could borrow $80 million from a bank
C) it could issue $80 million in stocks
D) it could choose either A or C
E) none of the above
A) it could sell $80 million in bonds
B) it could borrow $80 million from a bank
C) it could issue $80 million in stocks
D) it could choose either A or C
E) none of the above
answer
D
question
Suppose the government spending multiplier is 2. The federal government cuts spending by $40 billion. What is the change in GDP if the price level is not held constant?
A) an increase of less than $80 billion
B) an increase equal to $80 billion
C) an increase of greater than $80 billion
D) a decrease of less than $80 billion
E) a decrease of more than $80 billion
A) an increase of less than $80 billion
B) an increase equal to $80 billion
C) an increase of greater than $80 billion
D) a decrease of less than $80 billion
E) a decrease of more than $80 billion
answer
D
question
If the tax multiplier is -1.5 and a $200 billion tax increase is implemented, what is the change in GDP, holding everything else constant? (assume the price level is constant)
A) a $133.3 billion increase in GDP
B) a $300 billion increase in GDP
C) a $30 billion increase in GDP
D) a $133.33 billion decrease in GDP
E) none of the above
A) a $133.3 billion increase in GDP
B) a $300 billion increase in GDP
C) a $30 billion increase in GDP
D) a $133.33 billion decrease in GDP
E) none of the above
answer
E
question
Suppose Congress increased spending by $100 billion and raised taxes buy $100 billion to keep the budget balanced. What will happen to real equilibrium GDP>
A) real equilibrium GDP will fall
B) real equilibrium GDP will rise
C) there will be no changes in real equilibrium GDP
D) real equilibrium GDP will initially rise, but then fall below is previous equilibrium value
E) real GDP will equal potential GDP
A) real equilibrium GDP will fall
B) real equilibrium GDP will rise
C) there will be no changes in real equilibrium GDP
D) real equilibrium GDP will initially rise, but then fall below is previous equilibrium value
E) real GDP will equal potential GDP
answer
B
question
Generally with bond ratings, the higher the rating, the ____ the interest rate and investor will receive and the ____ the risk that the issuer of the bond will default
A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower
E) none of the above
A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower
E) none of the above
answer
D
question
when the government runs a budget deficit, we would expect to see that
A) private saving will fall
B) investment will fall
C) G + TR < T
D) public saving is positive
E) private saving will rise
A) private saving will fall
B) investment will fall
C) G + TR < T
D) public saving is positive
E) private saving will rise
answer
B
question
The demand for loanable funds is downward sloping because the __ the interest rate, the ____ the number of profitable investment projects a firm can undertake, and the _____ the quantity demanded of loanable funds
A) lower; greater; greater
B) lower; smaller; greater
C) greater; greater; greater
D) greater; smaller; greater
E) none of the above
A) lower; greater; greater
B) lower; smaller; greater
C) greater; greater; greater
D) greater; smaller; greater
E) none of the above
answer
A
question
Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion. To move the economy back to potential GDP, Congress should
A) lower government purchases by an amount less than $200 billion
B) lower government purchases by $200 billion
C) raise taxes by $200 billion
D) lower taxes by $200 billion
E) raise taxes by more than $200 billion
A) lower government purchases by an amount less than $200 billion
B) lower government purchases by $200 billion
C) raise taxes by $200 billion
D) lower taxes by $200 billion
E) raise taxes by more than $200 billion
answer
A
question
If net taxes fall by $80 billion, we would expect
A) the government deficit to fall by $80 billion
B) household saving to rise by $80 billion
C) household saving to rise by less than $80 billion
D) household saving to fall by more than $80 billion
E) none of the above
A) the government deficit to fall by $80 billion
B) household saving to rise by $80 billion
C) household saving to rise by less than $80 billion
D) household saving to fall by more than $80 billion
E) none of the above
answer
C
question
Public saving in the economy can be increased by
A) lowering taxes
B) raising government spending
C) raising taxes
D) raising transfer payments
E) none of the above
A) lowering taxes
B) raising government spending
C) raising taxes
D) raising transfer payments
E) none of the above
answer
C
question
Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion. To move the economy back to potential GDP, Congress should
A) lower taxes by an amount less than $500 billion
B) raise government purchases by $500 billion
C) raise government purchases by more than $500 billion
D) lower taxes by $500 billion
E) none of the above
A) lower taxes by an amount less than $500 billion
B) raise government purchases by $500 billion
C) raise government purchases by more than $500 billion
D) lower taxes by $500 billion
E) none of the above
answer
A
question
The demand for durable goods
A) has decreased over time
B) declines by a greater percentage than does GDP during a recession
C) declines by a smaller percentage than does GDP during a recession
D) rises by a greater percentage than does GDP during a recession
E) both A and D
A) has decreased over time
B) declines by a greater percentage than does GDP during a recession
C) declines by a smaller percentage than does GDP during a recession
D) rises by a greater percentage than does GDP during a recession
E) both A and D
answer
B
question
The Business Cycle Dating Committee, a part of the ______, officially decides when a recession begins and ends
A) federal government
B) Bureau of Labor Statistics
C) National Bureau of Economic Research
D) Federal Reserve
E) both A and C
A) federal government
B) Bureau of Labor Statistics
C) National Bureau of Economic Research
D) Federal Reserve
E) both A and C
answer
C
question
The Business Cycle Dating Committee defines a recession as
A) two consecutive quarters of declining real GDP
B) two consecutive quarters of declining nominal GDP
C) a significant decline in activity visible in industrial production, employment, real income, and wholesale/retail trade lasting more than a few months
D) a significant decline in inflation and unemployment lasting more than a few months
E) a significant increase in inflation and unemployment lasting more than a few months
A) two consecutive quarters of declining real GDP
B) two consecutive quarters of declining nominal GDP
C) a significant decline in activity visible in industrial production, employment, real income, and wholesale/retail trade lasting more than a few months
D) a significant decline in inflation and unemployment lasting more than a few months
E) a significant increase in inflation and unemployment lasting more than a few months
answer
C
question
A government budget surplus from reduced government spending (no change in net taxes) will _____ the level of investment in the economy and _____ the level of saving (private plus public) in the economy
A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease
E) none of the above
A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease
E) none of the above
answer
B
question
The crowing out of private spending by government spending will be greater the
A) less sensitive consumption, investment, and net exports are to changes in interest rates
B) more sensitive consumption, investment, and net exports are to changes in interest rates
C) less sensitive consumption, investment, and net exports are to changes in the price level
D) more sensitive consumption, investment, and net exports are to changes in the price level
E) less sensitive consumption, investment, and net exports are to changes in tax rates
A) less sensitive consumption, investment, and net exports are to changes in interest rates
B) more sensitive consumption, investment, and net exports are to changes in interest rates
C) less sensitive consumption, investment, and net exports are to changes in the price level
D) more sensitive consumption, investment, and net exports are to changes in the price level
E) less sensitive consumption, investment, and net exports are to changes in tax rates
answer
B
question
If GDP per capita rises by 2% between 2015 and 2016, which of the following is necessarily true?
A) real GDP has risen by more than 2%
B) real GDP has risen by less than 2%
C) the population has decreased
D) the population has increased, but by less than 2%
E) none of the above is necessarily true
A) real GDP has risen by more than 2%
B) real GDP has risen by less than 2%
C) the population has decreased
D) the population has increased, but by less than 2%
E) none of the above is necessarily true
answer
E
question
A change in consumption spending caused by income changes is _____ change in spending, and a change in government spending that occurs to improve roads and bridges is ______ change in spending
A) an induced; an autonomous
B) an expansionary; a contractionary
C) an autonomous; an induced
D) a contractionary; an expansionary
E) none of the above
A) an induced; an autonomous
B) an expansionary; a contractionary
C) an autonomous; an induced
D) a contractionary; an expansionary
E) none of the above
answer
A
question
An increase in the real interest rate will
A) cause consumers to spend more and save less
B) most likely lower consumers' purchases of durable goods
C) most likely lower the reward to savings
D) most likely lower the cost of borrowing
E) cause firms to borrow more
A) cause consumers to spend more and save less
B) most likely lower consumers' purchases of durable goods
C) most likely lower the reward to savings
D) most likely lower the cost of borrowing
E) cause firms to borrow more
answer
B
question
To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the
A) absolute size of the budget deficit or surplus
B) budget deficit or surplus as a percentage of tax revenue
C) budget deficit or surplus as a percentage of government spending
D) budget deficit or surplus as a percentage of transfer payments
E) budget deficit or surplus as a percentage of GDP
A) absolute size of the budget deficit or surplus
B) budget deficit or surplus as a percentage of tax revenue
C) budget deficit or surplus as a percentage of government spending
D) budget deficit or surplus as a percentage of transfer payments
E) budget deficit or surplus as a percentage of GDP
answer
E
question
Decreases in the price level will
A) lower consumption because goods and services are less affordable
B) raise consumption because goods and services are more affordable
C) raise consumption because real wealth increases
D) lower consumption because real wealth decreases
E) none of the above
A) lower consumption because goods and services are less affordable
B) raise consumption because goods and services are more affordable
C) raise consumption because real wealth increases
D) lower consumption because real wealth decreases
E) none of the above
answer
C
question
If national income increases by $20 million and consumption increases by $5 million, the marginal propensity to consume is
A) 4
B) 0.75
C) 0.5
D) 0.25
E) cannot be calculated with the given information
A) 4
B) 0.75
C) 0.5
D) 0.25
E) cannot be calculated with the given information
answer
D
question
A recession tends to cause the federal budget deficit to _____ because tax revenues ____ and government spending on transfer payments _____
A) increase; rise; falls
B) increase; fall; rises
C) decrease; rise; falls
D) decrease; fall; rises
E) none of the above
A) increase; rise; falls
B) increase; fall; rises
C) decrease; rise; falls
D) decrease; fall; rises
E) none of the above
answer
B
question
If firms are more pessimistic and believe that future profits will fall and remain weak for the next few years, then
A) investment spending will fall
B) investment spending will rise
C) investment spending will remain unaffected
D) investment spending will rise and then fall
E) consumption will rise
A) investment spending will fall
B) investment spending will rise
C) investment spending will remain unaffected
D) investment spending will rise and then fall
E) consumption will rise
answer
A
question
Which of the following is a true statement about the multiplier?
A) the multiplier rises as the MPC rises
B) the smaller the MPC, the larger the multiplier
C) the multiplier is a value between zero and one
D) the multiplier effect does not occur when autonomous expenditure decreases
E) the multiplier rises as the MPS rises
A) the multiplier rises as the MPC rises
B) the smaller the MPC, the larger the multiplier
C) the multiplier is a value between zero and one
D) the multiplier effect does not occur when autonomous expenditure decreases
E) the multiplier rises as the MPS rises
answer
A
question
John Maynard Keynes argued that if many households decided at the same time to increase saving and reduce spending,
A) this may benefit the economy in the short-run, but not in the long run
B) the economy will benefit in the short-run and benefit by an even greater amount in the long-run
C) this will have a major negative impact on the economy in both the short-run and in the long-run
D) this may benefit the economy in the long run, but could be counterproductive in the short run
E) this will require increased tax rates
A) this may benefit the economy in the short-run, but not in the long run
B) the economy will benefit in the short-run and benefit by an even greater amount in the long-run
C) this will have a major negative impact on the economy in both the short-run and in the long-run
D) this may benefit the economy in the long run, but could be counterproductive in the short run
E) this will require increased tax rates
answer
D
question
For the federal deficit to be lowered,
A) the federal government must decrease its spending and increase net exports
B) the federal government's expenditures must be lower than its tax revenue
C) the Federal Reserve must raise interest rates and lower the required reserve ratio
D) the Federal Reserve must reduce the money supply
E) the federal government must increase taxes, but increase expenditure by more
A) the federal government must decrease its spending and increase net exports
B) the federal government's expenditures must be lower than its tax revenue
C) the Federal Reserve must raise interest rates and lower the required reserve ratio
D) the Federal Reserve must reduce the money supply
E) the federal government must increase taxes, but increase expenditure by more
answer
B
question
An increase in the price level will
A) shift the aggregate demand curve to the left
B) shift the aggregate demand curve to the right
C) move the economy up along a stationary aggregate demand curve
D) move the economy down along a stationary aggregate demand curve
E) move the economy down along a stationary aggregate supply curve
A) shift the aggregate demand curve to the left
B) shift the aggregate demand curve to the right
C) move the economy up along a stationary aggregate demand curve
D) move the economy down along a stationary aggregate demand curve
E) move the economy down along a stationary aggregate supply curve
answer
C
question
If stricter immigration laws are imposed and many foreign workers in the US are forced to go back to their home countries,
A) the long-run aggregate supply curve will shift to the right
B) the long-run aggregate supply curve will shift to the left
C) we will move up along the long-run aggregate supply curve
D) we will move down along the long-run aggregate supply curve
E) the short-run aggregate supply curve will shift to the right
A) the long-run aggregate supply curve will shift to the right
B) the long-run aggregate supply curve will shift to the left
C) we will move up along the long-run aggregate supply curve
D) we will move down along the long-run aggregate supply curve
E) the short-run aggregate supply curve will shift to the right
answer
B
question
The owners of a ____ have a separate legal distinction from the business
A) corporation
B) partnership
C) sole proprietorship
D) both B and C
E) all of the above are correct
A) corporation
B) partnership
C) sole proprietorship
D) both B and C
E) all of the above are correct
answer
A
question
The invention of the integrated circuit by Jack Kilby of Texas Instruments gave rise to the information age. What did this technological change do to the short-run supply curve?
A) it shifted the short-run aggregate supply curve to the left
B) it shifted the short-run aggregate supply curve to the right
C) it moved the economy up along a stationary short-run aggregate supply curve
D) it moved the economy down along a stationary short-run aggregate supply curve
E) nothing - only the long-run aggregate supply curve would shift to the right
A) it shifted the short-run aggregate supply curve to the left
B) it shifted the short-run aggregate supply curve to the right
C) it moved the economy up along a stationary short-run aggregate supply curve
D) it moved the economy down along a stationary short-run aggregate supply curve
E) nothing - only the long-run aggregate supply curve would shift to the right
answer
B
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
