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1. An increase in the money supply
a.
reduces interest rates and shifts aggregate demand to the right.
b.
reduces interest rates and shifts aggregate supply to the right
c.
raises interest rates and shifts aggregate demand to the right.
d.
raises interest rates and shifts aggregate supply to the right.
2. Stimulus spending in 2009 was used for
a.
building roads and bridges.
b.
providing aid to local and state governments.
c.
making payments to the unemployed.
d.
All of the above are correct.
3. Which of the following is true of stimulus policy enacted in 2009?
a.
We can be sure that it reduced the severity of the recession because the recession was less severe than the
Great Depression.
b.
We can be sure that it reduced the severity of the recession even though the recession was more severe than
the Great Depression.
c.
We can not be sure that it reduced the severity of the recession, but the recession was less severe than the
Great Depression.
d.
We can not be sure that it reduced the severity of the recession because the recession was more severe than the
Great Depression.
4. According to traditional Keynesian analysis, if the economy is in a recession, the government can move it back towards
full employment by
a.
cutting taxes and increasing expenditures. The effect of the tax cut is larger.
b.
cutting taxes and increasing expenditures. The effect of the tax cut is smaller.
c.
raising taxes and decreasing expenditures. The effect of the tax increase is larger.
d.
raising taxes and decreasing expenditures. The effect of the tax increase is smaller.
5. According to computer estimates using a traditional macroeconomic model, the Obama administration found that the
multiplier for tax cuts and government expenditures were respectively
a.
.99 and 1.59.
b.
1.59 and .99
c.
1.3 and 1.7
d.
1.7 and 1.3
6. In which cases were tax cuts followed by robust growth?
a.
the ones of the Kennedy administration in 1964 and the ones of the Reagan administration in 1981
b.
the ones of the Kennedy administration in 1964 but not the ones of the Reagan administration in 1981
c.
the ones of the Reagan administration in 1981 but not the ones of the Kennedy administration in 1964
d.
neither the ones of the Kennedy administration in 1964 nor the ones of the Reagan administration in 1981
7. Suppose a tax cut affected aggregate demand and aggregate supply. The shift in aggregate supply would make the
a.
price level and real GDP change by more than otherwise.
b.
price level change by more than otherwise and real GDP change by less than otherwise.
c.
price level change by less than otherwise and real GDP change by more than otherwise.
d.
price level and real GDP change by more than otherwise.
8. Which of the following can tax cuts influence?
a.
Aggregate demand
b.
Aggregate supply
c.
Investment spending
d.
All of the above
9. Which of the following can tax cuts influence?
a.
aggregate demand and aggregate supply
b.
aggregate demand but not aggregate supply
c.
aggregate supply but not aggregate demand
d.
neither aggregate demand nor aggregate supply
10. Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise real GDP?
a.
both the shift of aggregate demand and the shift of aggregate supply
b.
the shift of aggregate demand, but not the shift of aggregate supply
c.
the shift of aggregate supply, but not the shift of aggregate demand
d.
neither the shift of aggregate demand nor the shift of aggregate supply
11. Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise the price level?
a.
both the shift of aggregate demand and the shift of aggregate supply
b.
the shift of aggregate demand, but not the shift of aggregate supply
c.
the shift of aggregate supply, but not the shift of aggregate demand
d.
neither the shift of aggregate demand nor the shift of aggregate supply
12. Which of the following is correct?
a.
Well designed tax cuts can increase investment which fluctuates more than consumption over the business
cycle.
b.
Well designed tax cuts can increase investment but it fluctuates less than consumption over the business cycle.
c.
Tax cuts have little effect on investment which fluctuate more than consumption over the business cycle.
d.
Tax cuts have little effect on investment but it fluctuates less than consumption over the business cycle
13. Which of the following is correct? Investment tax credits
a.
can increase investment, but stimulating investment is not a key to ending a recession.
b.
can increase investment, which is a key to ending a recession.
c.
can not increase spending on investment goods, but stimulating investment is not a key to ending a recession.
d.
can not increase spending on investment goods, but stimulating investment is a key to ending a recession.
14. Tax cuts
a.
can easily target investment spending, but investment spending falls by only a small percentage during
recessions.
b.
can easily target investment spending, which falls by a large percentage during recessions.
c.
cannot easily target investment spending, but investment spending falls by only a small percentage during
recessions.
d.
cannot easily target investment spending, which falls by a large percentage during recessions.
15. An increase in government expenditures may lead people to expect that in the future taxes will rise and create greater
distortions. By themselves these changes in expectations lead people to
a.
raise both consumption and investment.
b.
raise consumption but reduce investment.
c.
raise investment but reduce consumption.
d.
reduce both consumption and investment.
16. An increase in government spending financed by borrowing changes people’s expectations about future taxation such
that current consumption expenditures
a.
fall. The increase in expenditures makes it likely that future taxes will create smaller distortions.
b.
fall. The increase in expenditures makes it likely that future taxes will create larger distortions.
c.
rise. The increase in expenditures makes it likely that future taxes will create smaller distortions.
d.
rise. The increase in expenditures makes it likely that future taxes will create larger distortions.
17. Which of the following would those in favor of increasing government spending rather than decreasing taxes to prop
up aggregate demand probably not agree with?
a.
Traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than
decreases in taxes for increasing aggregate demand.
b.
Increased government spending on “shovel-ready” projects can be helpful to boost aggregate demand.
c.
Increases in government spending offer a greater “bang for the buck” than decreases in taxes.
d.
When the government gives a dollar in tax cuts to a household, that dollar immediately and fully adds to
aggregate demand.
18. Which of the following is not a valid point in debating the merits of increasing government expenditures or cutting
taxes during a recession?
a.
A cut in the marginal tax rate increases the incentives to find a job and work longer hours.
b.
Consumers will save a portion of a tax cut.
c.
The government may use the increase in expenditures on projects with little value, particularly if it wishes to
respond quickly.
d.
There is no evidence that tax cuts have been followed by increases in economic growth.
