41. Most recessions and depressions
a.
are accurately forecasted.
b.
usually occur with ample advance warning.
c.
cause falling unemployment.
d.
occur with little advance warning.
42. Critics of stabilization policy argue that
a.
b.
c.
d.
43. The lag problem associated with monetary policy is due mostly to
a.
the fact that business firms make investment plans far in advance.
b.
the political system of checks and balances that slows down the process of determining monetary policy.
c.
the time it takes for changes in government spending to affect the interest rate.
d.
All of the above are correct.
44. The lag problem associated with fiscal policy is due mostly to
a.
the fact that business firms make investment plans far in advance.
b.
the political system of checks and balances that slows down the process of implementing fiscal policy.
c.
the time it takes for changes in government spending or taxes to affect the interest rate.
d.
All of the above are correct.
45. When the Fed lowers the growth rate of the money supply, it must take into account
a.
only the short-run effect on production.
b.
only the short-run effects on inflation and production.
c.
only the long-run effect on inflation.
d.
the long-run effect on inflation as well as the short-run effect on production.
46. Monetary policy affects the economy with a long lag, in part because
a.
proposals to change monetary policy must go through both the House and Senate before being sent to the
president.
b.
monetary policy works through changes in interest rates, and the Fed does not have the ability to change
interest rates quickly.
c.
changes in interest rates primarily influence consumption spending, and households make consumption plans
far in advance.
d.
changes in interest rates primarily influence investment spending, and firms make investment plans far in
advance.
47. Macroeconomic forecasts are
a.
precise; this makes policy lags less relevant.
b.
precise; this makes policy lags more relevant.
c.
imprecise; this makes policy lags less relevant.
d.
imprecise; this makes policy lags more relevant.
48. Opponents of active stabilization policy
a.
advocate a monetary policy designed to offset changes in the unemployment rate.
b.
argue that fiscal policy is unable to change aggregate demand or aggregate supply.
c.
believe that the political process creates lags in the implementation of fiscal policy.
d.
None of the above is correct.
49. Opponents of active stabilization policy
a.
generally don’t believe, even in theory, that fiscal policy can stabilize the economy.
b.
generally agree that fiscal policy has no impact in the long run.
c.
believe some effects of monetary policy may be long-lived.
d.
think the Fed should simply try to fine tune the economy.
50. Automatic stabilizers
a.
increase the problems that lags cause in using fiscal policy as a stabilization tool.
b.
are changes in taxes or government spending that increase aggregate demand without requiring policy makers
to act when the economy goes into recession.
c.
are changes in taxes or government spending that policy makers quickly agree to when the economy goes into
recession.
d.
All of the above are correct.
51. An example of an automatic stabilizer is
a.
unemployment benefits.
b.
a lowering of interest rates by the Fed.
c.
a decrease in money demand.
d.
a decrease in tax rates in response to a recession.
52. Which of the following is not an automatic stabilizer?
a.
the minimum wage
b.
the unemployment compensation system
c.
the federal income tax
d.
the welfare system
53. During recessions, taxes tend to
a.
rise and thereby increase aggregate demand.
b.
rise and thereby decrease aggregate demand.
c.
fall and thereby increase aggregate demand.
d.
fall and thereby decrease aggregate demand.
54. Other things the same, automatic stabilizers tend to
a.
raise expenditures during expansions and recessions.
b.
lower expenditures during expansions and recessions.
c.
raise expenditures during recessions and lower expenditures during expansions.
d.
raise expenditures during expansions and lower expenditures during recessions.
55. During periods of expansion, automatic stabilizers cause government expenditures
a.
and taxes to fall.
b.
and taxes to rise.
c.
to rise and taxes to fall.
d.
to fall and taxes to rise.
56. During recessions, automatic stabilizers tend to make the government’s budget
a.
move toward deficit.
b.
move toward surplus.
c.
move toward balance.
d.
not necessarily move the budget in any particular direction.
57. The most important automatic stabilizer is
a.
open-market operations.
b.
the tax system.
c.
unemployment compensation.
d.
welfare benefits.
58. The primary argument against active monetary and fiscal policy is that
a.
attempts to stabilize the economy do not constitute a proper role for government in a democratic society.
b.
these policies affect the economy with a long lag.
c.
these policies affect the economy too quickly and with too much impact.
d.
history demonstrates that interest rates respond unpredictably to active policies, leading to unpredictable
effects on income.
59. Other things the same, during recessions taxes tend to
a.
rise. The rise in taxes stimulates aggregate demand.
b.
rise. The rise in taxes contracts aggregate demand.
c.
fall. The fall in taxes stimulates aggregate demand.
d.
fall. The fall in taxes contracts aggregate demand.
60. It is likely that a constitutional amendment that required the government always to run a balanced budget would
a.
contribute to a more stable level of output.
b.
mitigate the crowding-out effect.
c.
eliminate the economy’s automatic stabilizers.
d.
All of the above are correct.
61. Which of the following reduces the interest rate?
a.
an increase in government expenditures and an increase in the money supply
b.
an increase in government expenditures and a decrease in the money supply
c.
a decrease in government expenditures and an increase in the money supply
d.
a decrease in government expenditures and a decrease in the money supply
62. Suppose investment spending falls. To offset the change in output the Federal Reserve could
a.
increase the money supply. This increase would also move the price level closer to its value before the decline
in investment spending.
b.
increase the money supply. However, this increase would move the price level farther from its value before the
decline in investment spending.
c.
decrease the money supply. This decrease would also move the price level closer to its value before the
decline in investment spending.
d.
decrease the money supply. However, this increase would move the price level farther from its value before
the decline in investment spending.
63. Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could
a.
increase the money supply. This increase would also move the price level closer to its value before the rise in
stock prices.
b.
increase the money supply. However, this increase would move the price level farther from its value before the
rise in stock prices.
c.
decrease the money supply. This decrease would also move the price level closer to its value before the rise in
stock prices.
d.
decrease the money supply. However, this decrease would move the price level farther from its value before
the rise in stock prices.
64. Suppose foreigners find U.S. goods and services more desirable for some reason other than a change in the exchange
rate. Which policies could be used to offset the resulting change in output?
a.
an increase in the money supply and an increase in government purchases.
b.
an increase in the money supply and a decrease in government purchases.
c.
a decrease in the money supply and an increase in government purchases.
d.
a decrease in the money supply and a decrease in government purchases.
65. If it were not for the automatic stabilizers in the U.S. economy,
a.
the Federal Reserve would have less reason than it has now to monitor stock prices.
b.
it would be more desirable than it is now for the Federal Reserve to target an interest rate.
c.
a strict balanced-budget rule would be more desirable than it is now.
d.
output and employment would probably be more volatile than they are now.
66. A fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time,
the president’s economists estimated the multiplier to be
a.
3.2 for government purchases and 2.0 for tax cuts.
b.
2.4 for government purchases and 1.4 for tax cuts.
c.
1.6 for government purchases and 1.0 for tax cuts.
d.
1.6 for government purchases and 0.4 for tax cuts.
67. A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are
a.
smaller in closed economies than in open economies.
b.
larger in closed economies than in open economies.
c.
smaller in capitalist economies than in socialist economies.
d.
larger in capitalist economies than in socialist economies.
68. A 2009 article in The Economist noted that
a.
recent research has allowed economists to estimate the values of fiscal multipliers with a great deal of
precision.
b.
research on multipliers indicates that multipliers for permanent tax cuts tend to be smaller than multipliers for
temporary tax cuts.
c.
most of the evidence on multipliers for government spending is based on changes in military expenditures.
d.
All of the above are correct.
69. According to a 2009 article in The Economist, the multiplier effect and crowding-out effect would exactly offset each
other when the economy is
a.
operating at full capacity.
b.
in recession.
c.
experiencing zero inflation.
d.
experiencing high rates of inflation.
70. According to the IGM poll, what percentage of economists polled agreed that the unemployment rate at the end of
2010 was lower with ARRA than without?
a.
97%
b.
75%
c.
19%
d.
3%
71. According to the IGM poll, what percentage of economists polled agreed that the benefits of ARRA exceeded the
costs?
a.
75%
b.
19%
c.
6%
d.
97%
72. One of President Obama’s first fiscal policy initiatives was
a.
ARRA.
b.
TARP.
c.
QE1.
d.
QE2.
73. ARRA involved substantial
a.
increases in government spending.
b.
decreases in government spending.
c.
increases in the money supply.
d.
decreases in the money supply.
74. According to the “animal spirits” described by Keynes, when optimism reigns, households and firms
a.
increase spending which results in inflationary pressures.
b.
decrease spending which results in deflationary pressures.
c.
increase spending which results in deflationary pressures.
d.
decrease spending which results in inflationary pressures.
75. President Kennedy’s team of economic advisers included such prominent economists as
a.
James Tobin and Robert Solow.
b.
N. Gregory Mankiw and Paul Krugman.
c.
John Maynard Keynes and Friedrich Hayek.
d.
Austan Goolsbee and Justin Wolfers.
76. The G20 countries introduced stimulus packages that averaged ____ of GDP in 2009 and ____ in 2010.
a.
2%; 1.6%
b.
1.6%; 2%
c.
3%; 2%
d.
2%; 3%
77. A tax cut targeted at ____ people may have a bigger effect because
a.
poorer; poorer people tend to spend a higher share of their income.
b.
poorer; poorer people tend to spend a lower share of their income.
c.
wealthier; wealthier people tend to spend a higher share of their income.
d.
wealthier; wealthier people tend to spend a lower share of their income.