Question 1

As the marginal propensity to consume (MPC)  decreases, the spending multiplier

Accepted Answer

A)  increases.
B)  decreases.
C)  remains constant.
D)  becomes indefinable.E) A) and B)
F) B) and C)

Question 2

The expenditure multiplier indicates that

Accepted Answer

A)  changes in investment, government, or consumption spending can trigger much larger changes in output.
B)  an increase in saving will cause output to rise by a multiple of the additional saving.
C)  a market economy will be more stable than classical economists thought.
D)  the marginal propensity to consume is greater than one.E) C) and D)
F) B) and D)

Question 3

In the midst of the Great Depression in 1932, Congress and the Hoover administration increased tax rates substantially. According to the Keynesian view, this tax increase was

Accepted Answer

A)  inappropriate because it would depress economic activity and lead to further increases in unemployment.
B)  appropriate because it would lead to a significant increase in the money supply and, thereby, increase employment.
C)  inappropriate because it would decrease the money supply and, thereby, prolong the Depression.
D)  appropriate because it would stimulate economic activity and help end the Depression.E) None of the above
F) B) and C)

Question 4

If the federal government is running a budget surplus,

Accepted Answer

A)  its expenditures must be greater than its revenues.
B)  the supply of money will decline.
C)  it will be able to reduce its outstanding debt.
D)  the U.S.Treasury will have to borrow additional funds in order to cover the surplus.E) C) and D)
F) A) and B)

Question 5

When an economy expands into an economic boom, automatic stabilizers will tend to

Accepted Answer

A)  enlarge the budget deficit (or reduce the surplus) .
B)  reduce the budget deficit (or increase the surplus) .
C)  ensure that the budget will remain in balance.
D)  reduce the supply of money and, thereby, retard aggregate demand.E) A) and B)
F) All of the above

Question 6

Which of the following is an important insight of Keynesian analysis?

Accepted Answer

A)  When an economy is in a recession, lower interest rates and lower wage rates will quickly direct the economy back to full employment.
B)  When widespread unemployment is present, increases in aggregate demand will exert a larger impact on real output than when the economy is operating at or near full employment.
C)  When an economy is in a recession, it makes sense to increase taxes and reduce government expenditures.
D)  A balanced budget is the key to maintenance of full employment.E) A) and D)
F) A) and B)

Question 7

The 1930s were a period of

Accepted Answer

A)  strong economic expansion and rapid growth of real output.
B)  high rates of inflation coupled with a low rate of unemployment.
C)  depressed economic conditions and prolonged high rates of unemployment.
D)  strong growth of real output even though the general level of prices was declining.E) A) and B)
F) A) and C)

Question 8

According to the Keynesian view, an unanticipated reduction in spending will

Accepted Answer

A)  increase the demand for goods and services.
B)  raise business inventories and lead to a decline in output.
C)  lead to lower interest rates, which will stimulate aggregate demand and keep the economy at full employment.
D)  lead to a lower price level, which will quickly guide the economy to full-employment equilibrium.E) A) and B)
F) A) and C)

Question 9

Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?

Accepted Answer

A)  Discretionary changes in fiscal policy can be easily anticipated by private decision makers.
B)  It is difficult to properly time discretionary changes in fiscal policy.
C)  Discretionary fiscal policy is only effective during a recession.
D)  Discretionary fiscal policy is only effective during an economic boom.E) All of the above
F) None of the above

Question 10

According to the Keynesian model, in what ways will expansionary fiscal policy stimulate aggregate demand?

Accepted Answer

The two components of expansionary fisca...

Question 11

As the marginal propensity to consume (MPC)  increases, the spending multiplier

Accepted Answer

A)  increases.
B)  decreases.
C)  remains constant.
D)  becomes indefinable.E) All of the above
F) None of the above

Question 12

The primary tool of fiscal policy is

Accepted Answer

A)  the money supply.
B)  the stock market.
C)  the federal budget.
D)  regulation of the bond market.E) None of the above
F) A) and B)

Question 13

Prior to the time of John Maynard Keynes, most economists stressed that

Accepted Answer

A)  low levels of aggregate demand would lead to prolonged periods of unemployment.
B)  market economies were inherently unstable because of fluctuating aggregate demand.
C)  market adjustments would automatically direct an economy to full employment within a relatively brief period of time.
D)  budget deficits and surpluses were necessary for the control of economic fluctuations.E) C) and D)
F) None of the above

Question 14

Changes in government spending and/or taxes as the result of legislation, is called

Accepted Answer

A)  open market operations of the Federal Reserve.
B)  discretionary fiscal policy.
C)  balanced budget operations.
D)  discretionary monetary policy.E) None of the above
F) A) and C)

Question 15

How does Keynesian economic theory recommend that fiscal policy be conducted?

Accepted Answer

Keynesian economists believe the governm...

Question 16

Federal budget deficits generally grow during recessions because

Accepted Answer

A)  both tax revenues and transfer payments decrease.
B)  both tax revenues and transfer payments increase.
C)  tax revenues decrease while transfer payments increase.
D)  tax revenues increase while transfer payments decrease.
E)  tax revenues decrease but transfer payments are unchanged.F) C) and E)
G) C) and D)

Question 17

Government programs that automatically shift the government budget toward a deficit during recessions and a surplus during recoveries are called

Accepted Answer

A)  discretionary fiscal policy.
B)  automatic stabilizers.
C)  progressive taxation.
D)  price deflators.E) All of the above
F) None of the above

Question 18

Use the figure below to answer the following question(s) .
Figure 11-3 
-Refer to Figure 11-3. If the economy is currently operating at point a, which of the following would a Keynesian economist be most likely to favor?

Accepted Answer

A)  a tax cut
B)  an increase in government expenditures
C)  a shift to a more expansionary monetary policy
D)  a reduction in the budget deficitE) B) and C)
F) A) and C)

Question 19

According to the Keynesian view, if policy makers thought the economy was about to fall into a recession, which of the following would be most appropriate?

Accepted Answer

A)  a change in government spending and taxation that will lead to a budget surplus
B)  a planned increase in the budget deficit
C)  reducing government expenditures
D)  balancing the budgetE) A) and C)
F) A) and B)

Question 20

If an economy were experiencing a high rate of unemployment as the result of weak aggregate demand, a Keynesian economist would be most likely to recommend

Accepted Answer

A)  a reduction in taxes coupled with a reduction in government expenditures of equal size.
B)  an increase in government expenditures coupled with an increase in taxes of equal size.
C)  a reduction in taxes, without any offsetting reduction in government expenditures.
D)  maintenance of a balanced budget.E) A) and D)
F) B) and C)

Exam 11: Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

According to the Keynesian view, an unanticipated reduction in spending will

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As the marginal propensity to consume (MPC) decreases, the spending multiplier

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If the federal government is running a budget surplus,

Correct AnswerverifiedShow Answer

The expenditure multiplier indicates that

Correct AnswerverifiedShow Answer

According to the Keynesian view, if policy makers thought the economy was about to fall into a recession, which of the following would be most appropriate?

Correct AnswerverifiedShow Answer

Which of the following is an important insight of Keynesian analysis?

Correct AnswerverifiedShow Answer

As the marginal propensity to consume (MPC) increases, the spending multiplier

Correct AnswerverifiedShow Answer

In the midst of the Great Depression in 1932, Congress and the Hoover administration increased tax rates substantially. According to the Keynesian view, this tax increase was

Correct AnswerverifiedShow Answer

Government programs that automatically shift the government budget toward a deficit during recessions and a surplus during recoveries are called

Correct AnswerverifiedShow Answer

The primary tool of fiscal policy is

Correct AnswerverifiedShow Answer

The 1930s were a period of

Correct AnswerverifiedShow Answer

How does Keynesian economic theory recommend that fiscal policy be conducted?

Correct AnswerverifiedKeynesian economists believe the governm...View AnswerShow Answer

Prior to the time of John Maynard Keynes, most economists stressed that

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Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?

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If an economy were experiencing a high rate of unemployment as the result of weak aggregate demand, a Keynesian economist would be most likely to recommend

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When an economy expands into an economic boom, automatic stabilizers will tend to

Correct AnswerverifiedShow Answer

Use the figure below to answer the following question(s) . Figure 11-3 -Refer to Figure 11-3. If the economy is currently operating at point a, which of the following would a Keynesian economist be most likely to favor?

Correct AnswerverifiedShow Answer

Changes in government spending and/or taxes as the result of legislation, is called

Correct AnswerverifiedShow Answer

According to the Keynesian model, in what ways will expansionary fiscal policy stimulate aggregate demand?

Correct AnswerverifiedThe two components of expansionary fisca...View AnswerShow Answer

Federal budget deficits generally grow during recessions because

Correct AnswerverifiedShow Answer

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Keynesian economists believe the governm...
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The two components of expansionary fisca...
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