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During recessions, the government tends to run a budget deficit.

A) True
B) False

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What is the difference between monetary policy and fiscal policy?

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The Bank of Canada conducts monetary pol...

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Explain how unemployment insurance acts as an automatic stabilizer.

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As income falls, unemployment rises. Mor...

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Assume that the MPC is 0.9. What is the multiplier?


A) 0.1
B) 1.1
C) 9
D) 10

E) B) and C)
F) A) and C)

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Which of the following best defines automatic stabilizers?


A) changes in taxes or government spending that increase the lags caused by fiscal policy
B) changes in taxes or government spending that shift aggregate demand without requiring active policies
C) changes in taxes or government spending that policymakers quickly agree to implement
D) any change in taxes or government policies

E) A) and B)
F) A) and D)

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An increase in government spending initially and primarily shifts which curve in what direction?


A) aggregate demand to the right
B) aggregate demand to the left
C) aggregate supply to the right
D) aggregate supply to the left

E) A) and D)
F) A) and C)

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In a small open economy with perfect capital mobility, if exchange rates are fixed, how could aggregate demand be increased?


A) by increasing government expenditures
B) by increasing tax rates
C) by increasing the money supply
D) by decreasing the money supply

E) B) and D)
F) B) and C)

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Which of the following do critics of stabilization policy argue?


A) There is too short a lag between the time policy is passed and the time policy has an impact on the economy.
B) The impact of policy may not last long enough for the problem to be solved.
C) Policy cannot cause economic fluctuations.
D) Policy can be a source of, instead of a cure for, recessions.

E) B) and D)
F) A) and B)

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Which statements do economists NOT agree on?


A) Increases in the money supply shift aggregate demand to the right.
B) In the long run, increases in the money supply increase prices, but not output.
C) Recessions are associated with decreases in consumption, investment, and employment.
D) Government should use fiscal policy to try and stabilize the economy.

E) B) and C)
F) None of the above

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What do supply-side economists believe a reduction in the tax rate will cause?


A) a large shift of the aggregate-supply curve to the left
B) a large shift of the aggregate-supply curve to the right
C) a small shift of the aggregate-supply curve to the right
D) a small shift of the aggregate-supply curve to the left

E) B) and C)
F) None of the above

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What are the effects of a change in taxes on consumption and aggregate demand?


A) If taxes increase, consumption increases and aggregate demand shifts right.
B) If taxes increase, consumption decreases and aggregate demand shifts left.
C) If taxes decrease, consumption increases and aggregate demand shifts left.
D) If taxes decrease, consumption decreases and aggregate demand shifts right.

E) None of the above
F) A) and B)

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We have learned in previous chapters that fiscal policy can have lasting effects on savings, investment, and economic growth. On the other hand, this chapter seems to suggest that the only long-run effect of fiscal policy is an increase in the price level. How could you use the aggregate demand and supply model for a more accurate description of the short-run and long-run effects of an increase in government spending? Could you distinguish between different uses of government expenditures to predict their effects on prices and output?

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If we accept that fiscal policies increa...

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Which statement is consistent with the supply-side theories?


A) The Bank of Canada should use monetary policy only to control the rate of inflation.
B) The government should promote full employment and production.
C) The government should periodically increase the minimum wage and unemployment insurance benefits.
D) Tax cuts influence the aggregate supply significantly.

E) All of the above
F) A) and B)

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The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. What does this type of effect on spending illustrate?


A) the multiplier effect
B) the crowding-out effect
C) the marginal propensity to consume effect
D) the investment accelerator effect

E) B) and C)
F) A) and D)

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If the MPC is 0.8 and government increases spending by $50 million, what will be the demand for goods and services generated by this increase?


A) $10 million
B) $40 million
C) $62.5 million
D) $250 million

E) B) and D)
F) A) and B)

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What do supply-side economists focus more on than other economists?


A) how fiscal policy affects consumption
B) the multiplier effect of fiscal policy
C) how fiscal policy affects aggregate supply
D) the accelerator and exchange-rate effects

E) A) and B)
F) All of the above

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Assuming no crowding-out, investment-accelerator, or multiplier effects, how will a $100 billion increase in government expenditures shift aggregate demand?


A) It will shift aggregate demand right by more than $100 billion.
B) It will shift aggregate demand right by $100 billion.
C) It will shift aggregate demand right by less than $100 billion.
D) It will shift aggregate demand left by more than $100 billion.

E) A) and B)
F) B) and C)

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Which of the following shifts aggregate demand right?


A) an increase in government expenditures or a decrease in the price level
B) a decrease in government expenditures or an increase in the price level
C) an increase in government expenditures, but not a change in the price level
D) a decrease in the price level, but not an increase in government expenditures

E) A) and C)
F) None of the above

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A decrease in government spending initially and primarily shifts which curve in what direction?


A) aggregate demand right
B) aggregate demand left
C) aggregate supply right
D) aggregate supply left

E) A) and C)
F) A) and D)

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Which of the following is NOT an automatic stabilizer?


A) the minimum wage
B) the employment insurance benefits
C) the federal income tax
D) the welfare system

E) None of the above
F) A) and B)

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Showing 61 - 80 of 126

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