1.

A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because:

A.

government spending is more employment-intensive than is either consumption or investment spending.

B.

government spending increases the money supply and a tax reduction does not.

C.

a portion of a tax cut will be saved.

D.

taxes vary directly with income.



2.

Suppose government finds it can increase the equilibrium real GDP $45 billion by increasing government purchases by $18 billion. On the basis of this information we can say that the:

A.

MPS in this economy is .4.

B.

MPC in this economy is .4.

C.

balanced-budget multiplier does not apply in this economy.

D.

multiplier is 3.



3.

If APC = .6 and MPC = .5, a simultaneous increase in both taxes and government spending of $20 will:

A.

decrease GDP by $20.

B.

decrease GDP by $40.

C.

increase GDP by $20.

D.

increase GDP by $40.



4.

If government increases its tax revenues by $15 billion and the MPC is 2/3, then we can expect the equilibrium GDP to:

A.

decrease by $30 billion.

B.

decrease by $45 billion.

C.

decrease by $35 billion.

D.

decrease by $55 billion.



5.

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:

A.

increasing government spending by $4 billion.

B.

increasing government spending by $40 billion.

C.

decreasing taxes by $4 billion.

D.

increasing taxes by $4 billion.



6.

Assume that aggregate demand in the economy is excessive, causing demand-pull inflation. Which of the following would be most in accord with appropriate government fiscal policy?

A.

an increase in Federal income tax rates

B.

an increase in the size of income tax exemptions for each dependent

C.

passage of legislation providing for the construction of 8,000 new post office buildings

D.

an increase in soil conservation subsidies to farmers



7.

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will:

A.

shift the AD curve to the right.

B.

increase the equilibrium GDP.

C.

not affect the AD curve.

D.

shift the AD curve to the left.



8.


R-2 REF 12-33

Refer to the above diagram. If the economy's present aggregate demand curve is AD2:

A.

the most appropriate fiscal policy is an increase of government expenditures or a reduction of taxes.

B.

the most approprite fiscal policy is a reduction of government expenditures or an increase of taxes.

C.

government should not undertake either an expansionary or a contractionary fiscal policy.

D.

the economy is achieving its full capacity output.



9.


R-2 REF 12-33

Refer to the above diagram. Assume tht the initial aggregate demand curve is AD1 and the government undertakes fiscal policy which shifts the aggregate demand curve to AD2. If the horizontal distance between AD1 and AD2 is $100 billion, the change in real GDP in this situation:

A.

would be less than $100 billion.

B.

would be $100 billion.

C.

would be more than $100 billion.

D.

cannot be measured without knowing the size of the economy's multiplier.



10.

Which of the following fiscal actions would be the most effective in curbing inflation?

A.

incurring a budget deficit by borrowing from the public

B.

incurring a budget surplus which is used to retire debt held by commercial banks

C.

incurring a budget surplus and impounding that surplus

D.

incurring a budget surplus which is used to retire debt held by the public



11.

If the government 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

B.

creating new money

C.

borrowing from the public

D.

additional taxes upon corporate profits



12.

The full-employment budget tells us:

A.

that in a full-employment economy the Federal budget should be in balance.

B.

that tax revenues should vary inversely with GDP.

C.

what the size of the Federal budget deficit or surplus would be if the economy was at full employment.

D.

the actual budget deficit or surplus realized in any given year.



13.

Which one of the following best describes the net export effect associated with an expansionary American 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.




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