When you have completed your exam and reviewed your answers, click Submit Exam. Answers will not be recorded until you hit Submit Exam. If you need to exit before completing the exam, click Cancel Exam. Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer.
1. Which one of the following statements about discretionary fiscal policy is correct? A. Discretionary fiscal policy refers to any change in government spending or taxes that destabilizes the economy. B. Discretionary fiscal policy refers to the changes in taxes and transfers that occur as GDP changes. C. Discretionary fiscal policy refers to the authority that the President has to change personal income tax rates. D. Discretionary fiscal policy refers to changes in taxes and government expenditures made by Congress to stabilize the economy.
2. The amount by which federal tax revenues exceed federal government expenditures during a particular year is the A. budget surplus. B. Federal Reserve. C. budget deficit. D. public debt.
3. In building the aggregate expenditures model, Keynes believed that A. economies are normally at full employment and thus frequently susceptible to bouts of inflation. B. massive unemployment of labor and capital created conditions where sudden demand changes are unlikely to change prices. C. government intervention into the economy is the primary cause of business cycle fluctuations. D. changes in aggregate expenditures are unable to affect the level of real output in the economy.
4. Which one of the following statements about efficiency wages is correct? A. Efficiency wages are usually less than market wages. B. Efficiency wages are wage payments necessary to compensate workers for unpleasant or risky work conditions. C. Efficiency wages are above-market-wages that bring forth so much added work effort that per-unit production costs are lower than at market wages. D. Efficiency wages are relevant to macroeconomics because they explain rightward shifts in aggregate demand.
5. In the late 1990s the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the _______ effect. A. multiplier B. wealth C. interest-rate D. Keynes 6. Which one of the following statements about the interest-rate effect is correct? A. The interest-rate effect suggests that a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. B. The interest-rate effect suggests that an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending. C. The interest-rate effect suggests that an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. D. The interest-rate effect suggests that an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending.
7. Which one of the following statements about lump-sum taxes is correct? A. A lump-sum tax means that the tax applies only to one time period. B. A lump-sum tax means that tax revenues vary directly with GDP. C. A lump-sum tax means that the same amount of tax revenue is collected at each level of GDP. D. A lump-sum tax means that tax revenues vary inversely with GDP.
8. Which one of the following statements about fiscal policy is correct? A. Fiscal policy refers to the manipulation of government spending and taxes to achieve greater equality in the distribution of income. B. Fiscal policy refers to the altering of the interest rate to change aggregate demand. C. Fiscal policy refers to the manipulation of government spending and taxes to stabilize domestic output, employment, and the price level. D. Fiscal policy refers to the fact that equal increases in government spending and taxation will be contractionary.
9. An appropriate fiscal policy for severe demand-pull inflation is A. depreciation of the dollar. B. an increase in government spending. C. a reduction in interest rates. D. a tax rate increase.
10. Which one of the following represents the most contractionary fiscal policy? A. A $30 billion increase in government spending B. A $30 billion decrease in government spending C. A $30 billion tax cut D. A $30 billion tax increase
11. The most important determinant of consumption and saving is the A. interest rate. B. price level. C. level of income. D. level of bank credit.
12. If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes the _______ effect. A. real-balances B. shift-of-spending C. foreign purchases D. output
13. Which one of the following statements about the standardized budget is correct? A. The standardized budget tells us that in a full-employment economy the federal budget should be in balance. B. The standardized budget tells us what the size of the federal budget deficit or surplus would be if the economy was at full employment. C. The standardized budget tells us the actual budget deficit or surplus realized in any given year. D. The standardized budget tells us that tax revenues should vary inversely with GDP.
14. Expansionary fiscal policy is so named because it A. necessarily expands the size of government. B. is aimed at achieving greater price stability. C. is designed to expand real GDP. D. involves an expansion of the nation’s money supply.
15. Which one of the following statements about the standardized budget is correct? A. The standardized budget refers to the number of workers who are underemployed when the level of unemployment is 4 to 5 percent. B. The standardized budget refers to the inflationary impact that the automatic stabilizers have in a full-employment economy. C. The standardized budget refers to that portion of a full-employment GDP that isn’t consumed in the year it’s produced. D. The standardized budget refers to the size of the federal government’s budgetary surplus or deficit when the economy is operating at full employment.
16. The graphical relationship between the price level and the amount of real GDP that businesses will offer for sale is known as the _______ curve. A. aggregate supply B. investment supply C. investment demand D. aggregate demand
17. The amount by which government expenditures exceed revenues during a particular year is the A. GDP gap. B. budget deficit. C. public debt. D. full-employment.
18. A private closed economy includes A. households, businesses, and international trade, but not government. B. households only.End of exam C. households and businesses, but not government or international trade. D. households, businesses, and government, but not international trade.
19. In a private closed economy, when aggregate expenditures equal GDP, then A. disposable income equals consumption minus saving. B. consumption equals aggregate expenditures. C. planned investment equals saving. D. consumption equals investment.
20. Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is A. 80 percent. B. 8 percent. C. 20 percent. D. 2 percent.