Fiscal policy is carried out primarily by:
A) the Federal government. C) state governments alone.
B) state and local governments working together. D) local
governments alone.
Answer: A
In the Employment Act of 1946, the Federal
government:
A) applied the unemployment compensation program
to intrastate workers.
B) agreed to subsidize unemployed workers to the
extent of 50 percent of their average incomes.
C) committed itself to accept some degree of
responsibility for the general levels of employment and prices.
D) agreed to hire, through public works
programs, any employees who cannot find jobs with private industry.
Answer: C
Discretionary fiscal policy refers to:
A) any change in government spending or taxes
that destabilizes the economy.
B) the authority that the President has to
change personal income tax rates.
C) changes in taxes and government expenditures
made by Congress to stabilize the economy.
D) the changes in taxes and transfers that occur
as GDP changes.
Answer: C
Fiscal policy refers to the:
A) manipulation of government spending and taxes
to stabilize domestic output, employment, and the price level.
B) manipulation of government spending and
taxes to achieve greater equality in the distribution of income.
C) altering of the interest rate to change
aggregate demand.
D) fact that equal increases in government
spending and taxation will be contractionary.
Answer: A
Type:
D Topic: 1 E: 215
MA: 215
6. Discretionary fiscal policy is so named
because it:
A) is undertaken at the option of the nation's
central bank.
B) occurs automatically as the nation's level
of GDP changes.
C) involves specific changes in T and G
undertaken expressly for stabilization at the option of Congress.
D) is invoked secretly by the Council of
Economic Advisers.
Answer: C
Contractionary fiscal policy is so named
because it:
A) involves a contraction of the nation's money
supply.
B) necessarily reduces the size of government.
C) is aimed at reducing aggregate demand and
thus achieving price stability.
D) is expressly designed to contract real GDP.
Answer: C
Suppose
that the economy is in the midst of a recession. Which of the following
policies would be consistent with active fiscal policy?
A) a Congressional proposal to incur a Federal
surplus to be used for the retirement of public debt
B) a reduction in agricultural subsidies and
veterans' benefits
C) a postponement of a highway construction
program
D) a reduction in Federal tax rates on personal
and corporate income
Answer: D
In an
aggregate demand-aggregate supply diagram, equal decreases in government
spending and taxes will:
A) shift the AD curve to the right. C) not affect the AD curve.
B) increase the equilibrium GDP. D) shift the AD curve to the left.
Answer: D
. A tax
reduction of a specific amount will be more expansionary, the:
A) smaller is the economy's MPC. C) smaller is the economy's multiplier.
B) larger is the economy's MPC. D) less the economy's built-in stability.
Answer: B
.
Refer to the above diagram, in which Qf is the full-employment output. A contractionary fiscal policy would be most
appropriate if the economy's present aggregate demand curve were at:
A) AD0 B) AD1 C) AD2 D) AD3
Answer: D
If the government (whether through fiscal
or monetary policies) increases its
spending during recession to assist the economy, the funds for such
expenditures must come from some source. Which of the following sources would
be the most expansionary?
A) additional taxes on personal incomes C) borrowing
from the public
B) creating new money D) additional taxes on corporate profits
Answer: B
A major advantage of the built-in or
automatic stabilizers is that they:
A) simultaneously stabilize the economy and reduce
the absolute size of the public debt.
B) automatically produce surpluses during
recessions and deficits during inflations.
C) require no legislative action by Congress to
be made effective.
D) guarantee that the Federal budget will be
balanced over the course of the business cycle.
Answer: C
Suppose
the government purposely changes the economy's full-employment budget from a
deficit of 3 percent of real GDP to a surplus of 1 percent of real GDP. The government is engaging in a(n):
A) expansionary fiscal policy. C) neutral fiscal policy.
B) contractionary fiscal policy. D) high-interest rate policy.
Answer: B
Type:
A Topic: 5 E: 215
MA: 215
92. Suppose the government purposely changes the
economy's full-employment budget from a deficit of 0 percent of real GDP to a
deficit of 3 percent of real GDP. The
government is engaging in a(n):
A) expansionary fiscal policy. C) neutral fiscal policy.
B) contractionary fiscal policy. D) low-interest rate policy.
Answer: A
Which of the following best describes the
idea of a political business cycle?
A) Politicians are more willing to cut taxes and
increase government spending than they are to do the reverse.
B) Fiscal policy will result in alternating
budget deficits and surpluses.
C) Politicians will use fiscal policy to cause
output, real incomes, and employment to be rising prior to elections.
D) Despite good intentions, various timing lags
will cause fiscal policy to reinforce the business cycle.
Answer: C
The political business cycle refers to the
possibility that:
A) incumbent politicians will be reelected
regardless of the state of the economy.
B) politicians will manipulate the economy to
enhance their chances of being reelected.
C) there is more inflation during Democratic
administrations than during Republican administrations.
D) recessions coincide with election years.
Answer: B
The crowding-out effect of expansionary
fiscal policy suggests that:
A) government spending is increasing at the expense
of private investment.
B) imports are replacing domestic production.
C) private investment is increasing at the
expense of government spending.
D) saving is increasing at the expense of
investment.
Answer: A
Assume the government purposely incurs a
budget deficit that is financed by borrowing. As a result, interest rates rise
and the amount of private investment spending declines. This illustrates:
A) the equation-of-exchange effect. C) the crowding-out effect.
B) the paradox of thrift. D) the wealth effect.
Answer: C
An expansionary U.S. fiscal policy that
drives up U.S. interest rates is most likely to:
A) decrease the foreign demand for dollars and
appreciate the international value of the dollar.
B) decrease the foreign demand for dollars and
depreciate the international value of the dollar.
C) increase the foreign demand for dollars and
appreciate the international value of the dollar.
D) increase the foreign demand for dollars and
depreciate the international value of the dollar.
Answer: C
Which
one of the following best describes the net export effect associated with an
expansionary U.S. fiscal policy?
A) domestic interest rate falls, foreign demand
for dollars rises, dollar appreciates, and net exports increase.
B) domestic interest rate falls, foreign demand
for dollars rises, dollar appreciates, and net exports fall.
C) domestic interest rate rises, foreign demand
for dollars falls, dollar depreciates, and net exports increase.
D) domestic interest rate rises, foreign demand
for dollars increases, dollar appreciates, and net exports decline.
Answer: D
All
else equal, a contractionary U.S. fiscal policy which reduces domestic interest
rates tends to:
A) increase U.S. imports. C) reduce the foreign demand for U.S. dollars.
B) increase the international value of the dollar. D) aggravate
an existing U.S. trade deficit.
Answer: C
(Last Word) The composite index of leading
indicators is useful for:
A) predicting potential GDP. C) developing discretionary fiscal policy.
B) determining the natural rate of unemployment. D) forecasting
aggregate supply shocks.
Answer: C
Type:
A E: 227 MA: 227
147. (Last Word) Which one of the following is
one of the leading economic indicators?
A) index of consumer expectations C) the consumer price index
B) the unemployment rate D) Federal income tax collections
Answer: A
Money functions as:
A) a store of value. B) a
unit of account. C) a medium of exchange. D)
all of the above.
Answer: D
If you place a part of your summer
earnings in a savings account, you are using money primarily as a:
A) medium of exchange. B)
store of value. C) unit of account. D)
standard of value.
Answer: B
Which of the following is not part
of the M2 money supply?
A) money market mutual fund balances C) currency
B) money market deposit accounts D) large ($100,000 or more) time deposits
Answer: D
The M2 money supply includes:
A) stock certificates.
B) corporate bond certificates.
C) the cash value of life insurance policies.
D) individual shares in money market mutual
funds.
Answer: D
A $20 bill is a:
A) gold certificate. B)
Treasury note. C) Treasury bill. D)
Federal Reserve Note.
Answer: D
In which of the following situations is it
certain that the quantity of money demanded by the public will decrease?
A) nominal GDP decreases and the interest rate
decreases
B) nominal GDP increases and the interest rate
decreases
C) nominal GDP decreases and the interest rate
increases
D) nominal GDP increases and the interest rate
increases
Answer: C
If the quantity of money demanded exceeds
the quantity supplied:
A) the supply-of-money curve will shift to the
left.
B) the demand-for-money curve will shift to the
right.
C) the interest rate will rise.
D) the interest rate will fall.
Answer: C
The reserves of a commercial bank consist
of:
A) the amount of money market funds it holds.
B) deposits at the Federal Reserve Bank and
vault cash.
C) government securities that the bank holds.
D) the bank's net worth.
Answer: B
Type:
A Topic: 1 E: 254
MA: 254
9. A commercial bank's reserves are:
A) liabilities to both the commercial bank and
the Federal Reserve Bank holding them.
B) liabilities to the commercial bank and
assets to the Federal Reserve Bank holding them.
C) assets to both the commercial bank and the
Federal Reserve Bank holding them.
D) assets to the commercial bank and liabilities
to the Federal Reserve Bank holding them.
Answer: D
The primary purpose of the legal reserve
requirement is to:
A) prevent banks from hoarding too much vault
cash.
B) provide a means by which the monetary
authorities can influence the lending ability of commercial banks.
C) prevent commercial banks from earning excess
profits.
D) provide a dependable source of interest
income for commercial banks.
Answer: B
Most modern banking systems are based on:
A) money of intrinsic value. C) 100 percent reserves.
B) commodity money. D) fractional reserves.
Answer: D
Money is destroyed when:
A) loans are made.
B) checks written on one bank are deposited in
another bank.
C) loans are repaid.
D) the net worth of the banking system declines.
Answer: C
Excess reserves refer to the:
A) difference between a bank's vault cash and
its reserves deposited at the Federal Reserve Bank.
B) minimum amount of actual reserves a bank
must keep on hand to back up its customers deposits.
C) difference between actual reserves and
loans.
D) difference between actual reserves and
required reserves.
Answer: D
When
a commercial bank has excess reserves:
A) it is in a position to make additional loans.
B) its actual reserves are less than its
required reserves.
C) it is charging too high an interest rate on
its loans.
D) its reserves exceed its assets.
Answer: A
A bank's actual reserves can be found by:
A) adding its required and excess reserves.
B) subtracting its required reserves from its
excess reserves.
C) multiplying its excess reserves by the
reserve ratio.
D) multiplying its checkable deposits by the
reserve ratio.
Answer: A
Overnight loans from one bank to another
for reserve purposes entail an interest rate called the:
A) prime rate.
B) discount rate. C)
Federal funds rate. D) treasury bill rate.
Answer: C
If the monetary authorities want to reduce
the monetary multiplier, they should:
A) lower the legal reserve ratio. C) increase bank reserves.
B) raise the legal reserve ratio. D) lower interest rates.
Answer: B
Which of the following
represents a change in today's banking policies that should prevent a
recurrence of the bank panics of 1930-1933?
A) banks are more cautious lenders
B) banks keep large amounts of excess reserves
on hand
C) the FDIC insures bank deposits and therefore
depositors do not panic and rush to withdraw money when individual banks have
financial problems
D) the President now has the authority to close
banks whenever panics occur
Answer: C
Reserves must be deposited in the Federal
Reserve Banks by:
A) only commercial banks which are members of
the Federal Reserve System.
B) all depository institutions, that is, all
commercial banks and thrift institutions.
C) state chartered commercial banks only.
D) federally chartered commercial banks only.
Answer: B
Open-market operations refer to:
A) purchases of stocks in the New York Stock
Exchange.
B) the purchase or sale of government
securities by the Fed.
C) central bank lending to commercial banks.
D)
the
specifying of loan maximums on stock purchases.
Answer B
Open-market operations change:
A) the size of the monetary multiplier, but not
commercial bank reserves.
B) commercial bank reserves, but not the size
of the monetary multiplier.
C) neither commercial bank reserves nor the
size of the monetary multiplier.
D) both commercial bank reserves and the size of
the monetary multiplier.
Answer: B
When
the reserve requirement is increased:
A) required reserves are changed into excess
reserves.
B) the excess reserves of member banks are
increased.
C) a single commercial bank can no longer lend
dollar-for-dollar with its excess reserves.
D) the excess reserves of member banks are
reduced.
Answer: D
The
discount rate is the interest:
A) rate at which the central banks lend to the
U.S. Treasury.
B) rate at which the Federal Reserve Banks lend
to commercial banks.
C) yield on long-term government bonds.
D) rate at which commercial banks lend to the
public.
Answer: B
The discount rate is the rate of interest
at which:
A) Federal Reserve Banks lend to commercial
banks.
B) savings and loan associations lend to some
builders.
C) Federal Reserve Banks lend to large
corporations.
D) commercial banks lend to large corporations.
Answer: A
Changes in the discount rate are:
A) the most powerful and useful tool of monetary
policy.
B) less frequent than changes in the reserve
requirement.
C) more important than open-market operations.
D) less important than open-market operations in
implementing monetary policy.
Answer: D
If the Federal Reserve authorities were
attempting to reduce demand-pull inflation, the proper policies would be to:
A) sell government securities, raise reserve
requirements, and raise the discount rate.
B) buy government securities, raise reserve requirements,
and raise the discount rate.
C) sell government securities, lower reserve
requirements, and lower the discount rate.
D) sell government securities, raise reserve
requirements, and lower the discount rate.
Answer: A
Type:
A Topic: 5 E: 279
MA: 279
67. A contraction of the money supply:
A) increases the interest rate and decreases
aggregate demand.
B) increases both the interest rate and
aggregate demand.
C) lowers the interest rate and increases
aggregate demand.
D) lowers both the interest rate and aggregate
demand.
Answer: A
Type:
C Topic: 5 E: 278-279
MA: 278-279
68. If the Fed were to purchase government
securities in the open market, we would anticipate:
A) lower interest rates, an expanded GDP, and depreciation
of the dollar.
B) lower interest rates, an expanded GDP, and
appreciation of the dollar.
C) higher interest rates, a contracted GDP, and
depreciation of the dollar.
D) lower interest rates, a contracted GDP, and
appreciation of the dollar.
Answer: A
If the economy were encountering a severe
recession, proper monetary and fiscal policies would call for:
A) selling government securities, raising the
reserve ratio, lowering the discount rate, and a budgetary surplus.
B) buying government securities, reducing the
reserve ratio, reducing the discount rate, and a budgetary deficit.
C) buying government securities, raising the
reserve ratio, raising the discount rate, and a budgetary surplus.
D) buying government securities, reducing the
reserve ratio, raising the discount rate, and a budgetary deficit.
Answer: B
The sale of government bonds by the
Federal Reserve Banks to commercial banks will:
A) increase aggregate supply. C) increase aggregate demand.
B) decrease aggregate supply. D) decrease aggregate demand.
Answer: D
When
the reserve requirement is increased:
A) required reserves are changed into excess
reserves.
B) the excess reserves of member banks are
increased.
C) a single commercial bank can no longer lend
dollar-for-dollar with its excess reserves.
D) the excess reserves of member banks are
reduced.
Answer: D