The Economic Way of Thinking, 13e (Heyne)
Chapter 15 Economic Performance and Real-World Politics
1) Recall from Chapter 5: Other things constant, when households lower their time preferences,
and demonstrate a willingness to postpone some present consumption for future consumption,
A) their savings increase.
B) their savings decrease.
C) the budget deficit increases.
D) the budget deficit decreases.
2) Recall from Chapter 5: Other things constant, when households lower their time preferences,
and demonstrate a willingness to postpone some present consumption for future consumption,
A) their savings increase and interest rates rise.
B) their savings increase and interest rates fall.
C) the budget deficit increases and interest rates rise.
D) the budget deficit decreases and interest rates fall.
3) Recalling from Chapter 5, fill in the blanks: Other things constant, when households decide to
save more, the supply of credit ________ and interest rates ________.
A) falls; rise
B) falls; fall
C) rises; rise
D) rises; fall
4) Recalling from Chapter 5, fill in the blanks: Other things constant, when households decide to
save more, the supply of credit rises, interest rates ________ and business investment ________.
A) rise; rises
B) rise; falls
C) fall; rises
D) fall; falls
5) Recalling from Chapter 5, fill in the blanks: Other things constant, when household “time
preferences” ________, business investment tends to ________.
A) fall; fall
B) fall; rise
C) rise; fall
D) rise; rise
6) Recall from Chapter 5: interest rates in the free market (without artificial lowering by the Fed)
are largely determined by
A) Congress.
B) arbitrary bank lending practices.
C) household saving and consumption preferences.
D) tax revenues and lobbying demands.
7) When interest rates are free from central bank manipulation, and fall due to an increase in
household savings, this
A) provides an incentive for government to create a budget surplus.
B) sends a “green light” signal for businesses to increase investment.
C) has little impact on the macroeconomy.
D) creates a “cluster of errors” and an inevitable recession.
8) Your textbook authors argue that, other things constant, entrepreneurs respond to a fall in
interest rates by
A) paying less attention to long term profitability.
B) engaging in irrational business behavior.
C) investing in capital goods.
D) making all of the above choices.
9) In the economic way of thinking, the costs of a recession are predominantly
A) the costs of using money.
B) the excessive costs of advertising in the face of persistent, falling demand.
C) the costs of disappointed expectations and discoordination of plans.
D) the costs associated with high nominal interest rates.
10) Recessions are largely the result of
A) high wages.
B) the wishful thinking of zero economic growth advocates.
C) widespread and systemic errors from manipulated market signals.
D) none of the above.
11) Recessions are typically
A) unintended and disruptive.
B) easy to predict in advance.
C) the result of non-monetary disturbances.
D) events economists have a hard time explaining.
12) Which of the following leads to a recession?
A) An accumulation of money in the economy
B) An accumulation of mistakes in the economy
C) An accumulation of non-renewable resources in the economy
D) An accumulation of irrational decisions among businesses and households
13) To ask “what causes a recession” is the same as asking
A) “why does supply meet demand?”
B) “what is the link between price elasticity of demand and price elasticity of supply?”
C) “why have so many individuals made errors all at once?“
D) “why have price controls failed us?”
14) A recession shows
A) supply always equals demand.
B) supply never equals demand.
C) thousands of businesspeople have misread market signals.
D) real GDP must be lower than nominal GDP.
E) not enough households are using their credit cards.
15) To describe recessions as a “cluster of errors” in the economy means
A) markets never clear, even in the best of times.
B) something has caused people to systematically misread the signals provided by the market
process.
C) the laws of supply and demand have failed to work.
D) monopolies force people out of work.
16) A recession shows
A) supply always equals demand.
B) supply never equals demand
C) real GDP must be lower than nominal GDP.
D) a “cluster of errors” has occurred throughout the economy.
E) not enough households are using their credit cards.
17) When interest rates are artificially lowered through expansionary monetary policy,
A) longer-term investment projects appear to be more profitable.
B) production of capital goods increases.
C) the economy experiences an unsustainable boom phase.
D) the economy will likely fall into a recession in the longer run.
E) all of the above tend to occur.
18) Your textbook uses the “bite, chew, choke” story to explain
A) how restrictive monetary policy leads to a recession.
B) how expansionary monetary policy ultimately leads to a recession.
C) how restrictive fiscal policy leads to a recession.
D) how expansionary fiscal policy ultimately leads to a recession.
19) According to your textbook, expansionary monetary policy
A) encourages entrepreneurs to invest in projects that only appear profitable.
B) creates a temporary “boom,” or economic expansion.
C) will ultimately be followed by a “bust,” as entrepreneurs learn of their forecasting errors.
D) tends to generate all of the above.
20) According to your authors, a recessionary “bust” is
A) an inherent part of any market economy.
B) a correction of the mistakes generated during the prior expansionary “boom.”
C) an event that can be successfully recovered through fiscal “stimulus” policies.
D) identified by a rise in real GDP.
21) According to your authors, the “boom-bust” cycle is primarily caused by
A) government tax and spend policies.
B) an artificial lowering of interest rates through expansionary monetary policy.
C) waves of irrational optimism and pessimism in the business community.
D) a clash of interests among capitalists and laborers.
22) What leads thousands of profit seeking entrepreneurs to misread the signals of the market-
price system?
A) Poor budget policy on behalf of government officials
B) The globalization of the world economy
C) An artificial lowering of interest rates
D) A poor knowledge of the basic principles of supply and demand
23) According to your authors, the “boom” phase of the so-called “business cycle” is
A) caused by an expansionary increase of the money supply.
B) a systematic accumulation of mistakes among businesses and households across the economy.
C) undertaken because business planners miscalculate the expected profitability of their new
ventures.
D) ultimately followed by a recessionary “bust” as people begin to correct for the mistakes
they’ve made during the boom phase of the cycle.
E) described correctly by all of the above statements.
24) According to your authors, America’s Great Depression of the 1930s was evidence of
A) an unstable free market system
B) rampant greed among entrepreneurs.
C) a cluster or accumulation of errors.
D) antagonistic interests among the propertied and nonpropertied classes.
E) all of the above.
25) According to your authors, the “Great Recession” that began in 2008 is evidence of
A) an unstable free market system.
B) rampant greed among entrepreneurs.
C) a cluster or accumulation of errors.
D) antagonistic interests among the propertied and nonpropertied classes.
E) all of the above.
26) According to your authors, what caused the unsustainable housing bubble followed by the
Great Recession?
A) Unprecedented greed
B) The Fed’s lowering of interest rates during the early 2000s
C) Deregulation in the financial and investment banking markets
D) All of the above.
E) None of the above.
27) Your authors argue that unsustainable booms, followed by recessionary busts, are primarily
caused by the Fed’s expansionary monetary policies. Which of the following serves as an
exception to their claim?
A) The Great Depression of the 1930s
B) The Great Recession of the late 2000s
C) The authors admit that both of the above are exceptions.
D) The authors argue that neither of the above are exceptions, but rather strong examples.
28) Why was so much of the “boom” of the 2000s concentrated in the housing and real estate
sectors?
A) The Fed attempted to engineer an increase not only in real GDP, but in particular further the
expansion of those sectors.
B) The Community Reinvestment Act (CRA) called for banks to offer subprime loans to at-risk
customers.
C) People were encouraged to “flip” houses because the low interest and rate and easy lending
practices made it appear profitable to do so.
D) For all of the above reasons.
29) Chapter 15 suggests that the Community Reinvestment Act (CRA) provides an example of
A) bad intentions and bad unintended consequences.
B) good intentions and bad unintended consequences.
C) bad intentions and good unintended consequences.
D) good intentions and good unintended consequences.
30) The analysis of Chapter 15 argues that the painfully slow recovery following the Great
Recession, in which the accumulation of mistakes during the housing bubble are not being fully
corrected, is explained by
A) the Fed’s continued attempt to keep interest rates low and “help” the housing sector recover.
B) the negative consequences of deficit policies that attempt to “stimulate” the economy.
C) both of the above reasons.
D) neither of the above reasons.
31) The analysis in Chapter 15 implies that the housing bubble of the last decade would likely
have been avoided if
A) the Fed had pursued a monetary equilibrium policy as opposed to cheap interest rate policies.
B) people weren’t as greedy as they were during the beginning and middle of the bubble.
C) price controls were established to keep home prices from rising as high as they did.
D) markets were better regulated.
32) For many years after the Great Depression, economists believed a central bank policy of
increasing bank reserves in response to a recession would be
A) largely ineffective.
B) the opposite of what the circumstances required.
C) useless unless it also raised interest rates.
D) useless unless it was accompanied by declining prices.
33) Discretionary monetary policy was more frequently employed than discretionary fiscal
policy in the two decades following World War II because
A) economic conditions did not seem to require any use of fiscal policy tools during this period.
B) economists did not yet believe in the effectiveness of fiscal policy.
C) inflation was not yet seen as a problem.
D) monetary policy could be altered without Congressional action.
E) monetary policy was thought to be capable of raising output while holding down prices.
34) Keynes rhymes with
A) beans.
B) gains.
C) genies.
D) none of the above.
35) Fiscal policy is policy aimed at controlling undesired fluctuations in overall spending
through changes in
A) government expenditures and taxes.
B) government subsidies to marginal business firms.
C) interest rates.
D) methods of making seasonal adjustments.
E) price and wage regulation.
36) Fiscal policy is
A) another term for monetary policy.
B) the implementation of import fees and restrictions to promote the domestic economy.
C) the use of the government budget to bring about desired levels of total spending.
D) the use of money to promote the sustainability of a nation’s non-renewable resources.
37) Fill in the blanks: ________ policy attempts to manipulate ________ in the economy.
A) Monetary; price controls
B) Monetary; fiscal policy
C) Fiscal; overall spending
D) Fiscal; monetary policy
38) Fill in the blank: According to your textbook, “Fiscal policy is simply ________.”
A) budget policy
B) monetary policy under a different name
C) price policy
D) wage policy
E) stupid
39) Which is an example of expansionary fiscal policy?
A) A lowering of tax rates
B) A lowering of government spending
C) An increase in the discount rate
D) An increase in the federal funds rate
E) An increase in reserve requirements
40) Which is an example of expansionary fiscal policy?
A) An increase in tax rates
B) An increase in government spending
C) An increase in the discount rate
D) An increase in the federal funds rate
E) All of the above.
41) Which is an example of restrictive fiscal policy?
A) An increase in the discount rate
B) An increase in the federal funds rate
C) An increase in reserve requirements
D) A lowering of tax rates
E) A lowering of government spending
42) Which combination of monetary and fiscal policies might policymakers elect to ward off
potential inflation?
A) Fed purchase of bonds combined with tax rate increases
B) Fed purchase of bonds combined with tax rate decreases
C) Fed sale of bonds combined with tax rate increases
D) Fed sale of bonds combined with tax rate decreases
43) Which combination of monetary and fiscal policies might policymakers elect to ward off
potential inflation?
A) Fed sale of bonds combined with increased government spending
B) Fed sale of bonds combined with decreased government spending
C) Fed purchase of bonds combined with increased government spending
D) Fed purchase of bonds combined with decreased government spending
44) Which combination of monetary and fiscal policies might policymakers elect to ward off a
potential recession?
A) Fed sale of bonds combined with tax rate increases
B) Fed sale of bonds combined with tax rate decreases
C) Fed purchase of bonds combined with tax rate increases
D) Fed purchase of bonds combined with tax rate decreases
45) Which combination of monetary and fiscal policies might policymakers elect to ward off a
potential recession?
A) Fed sale of bonds combined with increased government spending
B) Fed sale of bonds combined with decreased government spending
C) Fed purchase of bonds combined with increased government spending
D) Fed purchase of bonds combined with decreased government spending
46) Which of the following policies face difficult problems of timing?
A) Fiscal policy
B) Monetary policy
C) Both of the above.
D) None of the above.
47) Time lags occur when which of the following questions is asked?
A) Where is the economy now?
B) Where is the economy going?
C) How long will it take for a correct policy to be implemented?
D) All of the above.
E) None of the above.
48) The time lags, which must be either reduced or known with some precision if fiscal policy is
to be an effective stabilizing technique, are the lags between
A) the beginning of a cyclical movement and its recognition.
B) the decision that compensatory action should be taken and the enactment of tax or
expenditure changes.
C) the increase or decrease in net government receipts and their final effects on total spending.
D) all of the above, because a significant miscalculation with respect to any of these lags could
increase aggregate instability.
49) Effectively managing aggregate demand in order to stabilize nominal GDP requires
A) policy makers to know the size of the gap between current demand and demand at
equilibrium.
B) only that policy makers know what level of aggregate demand is necessary for full
employment.
C) successful economic forecasting.
D) that nominal GDP be the same as real GDP.
E) very little information about the economy because the market system is an efficient generator
of high-quality information.
50) The time it takes for an additional dollar of net government expenditures to work its way
through the economy and have its full effect
A) is about one quarter of a year.
B) is between one and two years.
C) is not yet known precisely because little empirical research has been done on the question.
D) probably cannot be predicted from an examination of historical data.
51) The time it takes for a one-dollar addition to bank reserves to work its way through the
banking system and the financial portfolios of the public and have its full impact on the stock of
money
A) is about one quarter of a year.
B) is between six and nine months.
C) is not yet known precisely because little empirical research has been done on the question.
D) probably cannot be predicted from an examination of historical data.
52) We do not have reliable information on the time lags between expansionary fiscal and
monetary policy actions and their effect on production and prices because
A) Congress has reduced the funds available to the Bureau of Economic Analysis.
B) economists believe any discretionary policy would only make matters worse.
C) economists have only recently discovered the importance of this problem.
D) the length of the lags will depend in large part on how long they are thought to be.
53) Does fiscal policy affect monetary policy?
A) No, because real output and income can and sometimes do move in the opposite direction
from nominal money output and income.
B) Yes, because the Fed and the Treasury naturally tend to pursue similar goals.
C) Yes, because government deficits or surpluses affect the total demand for credit.
D) Yes, because the government usually prints new money to finance deficits and retires that
money when it runs a surplus.
54) Does monetary policy require the accompaniment of fiscal policy to change total spending?
A) No, because the Fed is an independent agency of the federal government.
B) Yes, because monetary policy can contract total spending but cannot by itself expand it.
C) Yes, because no policy is effective if it only changes nominal money values.
D) Yes, if the demand for money tends to change in about the same direction and amount
whenever the supply changes.
55) In order to move aggregate demand to the level consistent with full employment by means of
fiscal policy, government officials who set the budget must know
A) the current level of aggregate demand.
B) the level of aggregate demand that would be consistent with full employment.
C) the size of the budget changes required to induce the appropriate-sized changes in aggregate
demand.
D) all of the above.
56) If recessions are in large part the consequence of coordination failures,
A) government must direct or control private spending to reduce instability.
B) stability cannot be achieved without the use of discretionary fiscal policy.
C) stability cannot be achieved without the use of discretionary monetary policy.
D) the economy is unlikely to respond smoothly and predictably to shifts in government policy.
57) If Congress authorized the President to lower tax rates or to initiate spending projects when
aggregate demand was inadequate, which consequence could be predicted most confidently?
A) Aggregate spending would be more stable over time.
B) Recessions would be less severe.
C) Recessions would occur less frequently.
D) The political power of the President would increase.
E) We would experience a lower rate of inflation.
58) Members of the Federal Reserve Board of Governors can set monetary policy in relative
independence of political pressures because
A) monetary policy is too complex to be understood by the general public.
B) their authority derives from the Constitution rather than popular election.
C) they are not allowed to belong to any political party.
D) they hold their positions for fourteen-year terms.
59) The relative quickness with which the Open Market Committee can respond to changes in
economic indicators leads the Fed to
A) control precisely the growth rate of the money stock.
B) control precisely the growth rate of total spending.
C) make more frequent mistakes in monetary policy than Congress makes in executing fiscal
policy.
D) use the discount rate to control bank lending and hence aggregate demand.
60) Which of the following would likely take the longest time to enact?
A) Federal government fiscal policy that strives for a balanced budget
B) The Fed’s lowering of the discount rate
C) The Fed’s raising of the discount rate
D) The Fed’s engagement in open market operations
61) Does the experience of World War II demonstrate that government budget deficits and
surpluses can be used to stabilize aggregate demand?
A) No, because the deficits run during the 1930s did not end the recession.
B) No, because the fact that deficits or surpluses can alter aggregate demand does not prove they
can stabilize it.
C) Yes, because nominal GDP increased by more than the amount of the deficit in each wartime
year.
D) Yes, because World War II demonstrated the multiplier effect of deficits.
62) Attempts to fine-tune the economy through counter-cyclical fiscal policy
A) demonstrated their effectiveness in the 1930s.
B) demonstrated their effectiveness during World War II.
C) demonstrated their effectiveness between 1945 and 1960.
D) have not yet demonstrated their effectiveness.
63) Attempts to fine-tune the economy through counter-cyclical monetary policy
A) demonstrated their effectiveness in the 1930s.
B) demonstrated their effectiveness during World War II.
C) demonstrated their effectiveness between 1945 and 1960.
D) have not yet demonstrated their effectiveness.
64) The stabilization policies of government are most likely to promote
A) high employment.
B) price stability.
C) reduced aggregate fluctuations.
D) the interests of those who plan and execute them.
E) the interests of the majority of voters.
65) Legislators facing a close electoral contest will tend to favor
A) policies with benefits greater than costs for everyone.
B) policies with benefits greater than costs for the majority.
C) policies with benefits in the near future and deferred costs.
D) policies representing the public interest.
66) According to the economic theory of government, policies in a democracy will favor
A) the interests of many small minorities.
B) the public interest.
C) the real interests of the majority.
D) whatever the majority thinks it wants even when this is not in the majority’s real long run
interest.
67) According to the economic way of thinking, government officials tend to vote on legislation
that
A) concentrates benefits on a well-organized group.
B) disperses costs throughout a great number of politically unorganized people.
C) generates short-term benefits and postpones the costs.
D) does all of the above.
E) does none of the above.
68) Elected government officials seem biased toward favoring
A) the national interest.
B) the global interest.
C) well organized, special interest groups.
D) policies that are in the long-run interest of economists.
69) The democratic political process is weighted in a manner that favors
A) contractionary over expansionary fiscal and monetary policies because changes in aggregate
demand tend to affect output before they affect the price level.
B) contractionary over expansionary fiscal and monetary policies because changes in aggregate
demand tend to affect the price level before they affect output.
C) expansionary over contractionary policies because changes in aggregate demand tend to affect
output before they affect the price level.
D) expansionary over contractionary policies because changes in aggregate demand tend to
affect the price level before they affect output.
70) The economic theory of government predicts elected officials at the federal level will have
incentives to act in ways that
A) cause inflation.
B) increase uncertainty and the instability of total demand.
C) secure short-term economic gains with deferred costs.
D) result in all of the above.
E) result in none of the above because they will usually want to be reelected.
71) According to the economic way of thinking, elected government officials tend to favor
A) contractionary monetary policies.
B) contractionary fiscal policies.
C) expansionary monetary and fiscal policies.
D) monetary and fiscal policies consistent with the public interest.
72) According to economic theory, the democratic political processes tend to produce
A) unstable aggregate demand policies with a bias toward expansion.
B) unstable aggregate demand policies with a bias toward contraction.
C) stable aggregate demand policies, but only if economists are elected to office.
D) stable aggregate demand policies that are in the best interests of the nation as a whole.
E) economic policies that harm everybody.
73) Fill in the blanks: Elected government officials ________ support ________ monetary
policies.
A) always; contractionary
B) tend to; expansionary
C) always; expansionary
D) tend to; contractionary
74) If the U.S. government can run chronic budget deficits, why can’t state governments do the
same?
A) Conservatives have more power in state legislatures than in the U.S. Congress.
B) Voters do not believe in budget deficits and they control state governments.
C) Most states have no income tax.
D) State constitutions require balanced budgets.
E) States must rely on taxation for the funds to repay creditors.
75) According to economic theory, state governments
A) will be biased toward chronic budget deficits.
B) will act in the public interest.
C) will act in the national interest.
D) will do all of the above.
E) will do none of the above.
76) The democratic political process operating at the national level tends to result in
A) balanced budgets.
B) deficits.
C) surpluses.
D) surpluses alternating with deficits in a countercyclical manner.
77) According to economic theory, elected government officials will favor
A) federal budget surpluses.
B) balanced federal budgets.
C) federal budget deficits.
D) shrinking federal budgets.
78) Fill in the blanks: Elected government officials ________ support ________ fiscal policies.
A) must; contractionary
B) tend to; expansionary
C) must; expansionary
D) tend to; contractionary
79) Keynesian analysis may have contributed to chronic federal budget deficits by
A) advocating transfer payments to redistribute income.
B) persuading the public that any given deficit could be a result of responsible policy decisions.
C) putting economists in charge of fiscal policy.
D) reducing the power of the government to finance expenditures through taxation.
80) Why has the federal government generally run budget deficits over the past several decades?
A) Political pressures make expenditures hard to control.
B) The federal government’s control of the money supply enables it to borrow indefinitely
without becoming unable to find creditors.
C) The public has accepted the notion that budget deficits can be good for the economy.
D) A combination of the three factors mentioned above.
81) The federal government budget has generally been in a deficit for the past several decades
because
A) budget deficits promote full employment.
B) every year during those decades was a recession year in which expansionary fiscal policy was
called for.
C) military expenditures were increased steadily throughout those decades.
D) political pressure on Congress to increase taxes and to balance the budget were less effective
than political pressure to increase expenditures.
82) Economic theory predicts
A) balanced budgets are impossible to achieve through a democratic political process.
B) budget surpluses are impossible to achieve through a democratic political process.
C) budget deficits are likely to occur through a democratic political process.
D) the absolute size of the budget will be systematically reduced in the long run through
democratic political processes.
83) Roughly how many times has the U.S. experienced a budget surplus since 1960?
A) 0
B) 5
C) 10
D) 20
E) 30
84) What, according to the textbook, accounts for the federal budget surplus in the late 1990s?
A) A move toward virtue on Capital Hill
B) Strong economic growth during that period
C) Huge increases in tax rates
D) A successful beggar-thy-neighbor strategy
85) Of the following, pick the year the U.S. enjoyed a budget surplus.
A) 1970
B) 1980
C) 1990
D) 2000
E) 2010
86) Fill in the blank: The U.S. had ________ throughout the past 10 years.
A) balanced budgets
B) budget deficits
C) budget surpluses
D) no budget policy
87) In the attempt to use deficits to fight the Great Recession, what was the size of the federal
government’s “stimulus” plan of 2009?
A) $7.87 billion
B) $78.7 billion
C) $787 billion
D) $7.87 trillion
88) Your textbook asserts that the federal government’s $787 billion stimulus plan, launched in
2009,
A) failed to stimulate the economy out of the Great Recession.
B) was followed by growing unemployment.
C) stifled the corrective process of the previous cluster of errors during the housing bubble.
D) favored well-organized interests.
E) led to all of the above.
89) The economic way of thinking asserts, as a universal claim, that
A) politicians are immoral.
B) voters are immoral.
C) morals don’t matter in politics.
D) all of the above are true.
E) none of the above are true.
90) According to the textbook, why didn’t the U.S. government mount chronic budget deficits
before 1970?
A) Elected officials didn’t know how to use the federal budget as a policy tool.
B) Deficits were viewed as an irresponsible moral failure on the part of government.
C) The U.S. had a constitutional balanced budget amendment.
D) For all of the above reasons.
E) For none of the above reasons.
91) According to your textbook, Keynesian economic theory
A) argues that federal budget deficits were necessary during periods of rapid economic growth.
B) questioned the use of the federal budget deficit as a policy tool to manipulate and fine-tune
the economy.
C) helped break the mentality that federal budget deficits were improper.
D) did all of the above.
E) did none of the above.
92) If elected officials prefer policy actions that make benefits available quickly while deferring
costs, they will be inclined to favor
A) an easier monetary policy to counter recession.
B) increased appropriations to provide jobs for unemployed workers.
C) a wage and price freeze to control inflation.
D) all of the above.
E) none of the above.
93) Attempts to fine-tune the economy through shifts in fiscal and monetary policy
A) cannot alter the level of unemployment but may change the price level.
B) may not do any good but certainly do no harm.
C) produce greater stability, but only at the cost of an ever-increasing national debt.
D) will increase rather than reduce instability if the policy makers lack adequate information.
94) The Fed is
A) shielded from political pressure.
B) officially independent from the federal government.
C) staffed by Congressmen who are biased toward monetary expansion.
D) responsible for minting coins and collecting taxes.
95) Your text suggests the Fed
A) is a slave to Congress.
B) is totally free from political pressure.
C) probably cannot pursue monetary policies that completely contradict the federal government’s
fiscal policies.
D) is a hoax and a shame that ought to be abolished.
96) In the economic way of thinking, we assume that central bankers act
A) selfishly.
B) to promote projects which interest them.
C) in the national interest.
D) in the global interest.
97) The economic point of view assumes central bankers, bureaucrats, elected politicians, and
tax collectors
A) are immoral.
B) act selfishly.
C) respond to incentives.
D) act in the national interest.
98) The fiscal and monetary policy alternative to fine-tuning is
A) abandonment of both fiscal and monetary policy.
B) abandonment of fiscal policy in favor of exclusive reliance on monetary policy.
C) budgets established for the long term and a steady growth rate for the money stock.
D) price and wage controls.
E) redistribution of income in favor of those with a higher propensity to spend.
99) According to the text, which of the following consequences could we predict most
confidently if the federal government was effectively required, by a constitutional amendment, to
match expenditures and tax revenues (balance the budget) in each fiscal year?
A) An end to discretionary fiscal policy
B) An end to efforts to manipulate the economy for partisan political purposes
C) Frequent and sudden changes in previously legislated tax rates and expenditure commitments
D) Less unemployment but more inflation
100) Because the actual market-capitalist system is a combination of market processes and
political processes,
A) it can only be managed appropriately by well-trained political economists.
B) it is often unclear where to place the blame when things go wrong.
C) political considerations will always ruin the market process.
D) economic considerations will always ruin the political process.