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Multiple Choice Quiz
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1
According to Keynes the source of high unemployment is:
A)Excessive aggregate demand
B)Insufficient aggregate demand
C)An increase in aggregate supply
D)Say's law
2
The federal government can alter aggregate demand by all of the following except:
A)Purchasing more or fewer goods and services
B)Raising or lowering taxes
C)Increasing productivity or output per hour
D)Changing the level of income transfers
3
The use of taxation or government spending to alter macroeconomic outcomes is:
A)Monetary policy
B)Fiscal policy
C)Self-adjustment policy
D)None of the above
4
A fiscal stimulus is intended to:
A)Shift aggregate demand to the left
B)Shift aggregate supply to the right
C)Shift aggregate demand to the right
D)Fight inflation
5
If government increases its spending, then:
A)Total spending increases by the amount of federal spending increase
B)Total spending will equal the new spending injection times the multiplier
C)Total spending will decline
D)Total spending will increase to cure the inflationary gap
6
If MPC is .80, and government spending increases by $200 billion then:
A)Total spending will increase by $200 billion
B)Total spending will increase by $400 billion
C)Total spending will decrease by $200 billion
D)Total spending will increase by $1000 billion
7
The desired fiscal stimulus is equal to:
A)The AD shortfall multiplied by the multiplier
B)The AD shortfall divided by the multiplier
C)The AD shortfall divided by MPC
D)The recessionary gap multiplied by the multiplier
8
To stimulate aggregate demand the government can:
A)Raise taxes
B)Lower taxes or increase government spending
C)Cut government spending
D)Decrease income transfers
9
South Korea used a fiscal stimulus to:
A)Achieve price stability
B)Decrease aggregate demand
C)Offset a decline in export sales and avert recession
D)Reduce inflation
10
The desired tax cut to cure a recessionary gap will be:
A)Equal to the desired fiscal stimulus divided by MPC
B)Equal to the desired fiscal stimulus multiplied by MPC
C)Equal to the amount of the recessionary gap
D)Equal to the fiscal stimulus divided by the multiplier
11
The desired fiscal restraint is equal to:
A)Excess demand divided by MPC
B)Excess demand divided by the multiplier
C)The aggregate demand shortfall divided by the multiplier
D)The aggregate demand shortfall divided by MPC
12
To reduce inflation the federal government can:
A)Raise taxes
B)Decrease government spending
C)Decrease income transfers
D)All of the above
13
Crowding out is:
A)A reduction in aggregate spending due to a tax increase
B)An increase in government spending
C)A reduction in income transfers
D)A reduction in private borrowing due to increased government borrowing
14
All of the following are weaknesses of fiscal policy except:
A)Private borrowing may be reduced by government borrowing
B)Time lags
C)Multiplier effects
D)Politicians will disagree about the proper fiscal policy
15
Crowding out occurs when the government:
A)Increases taxes, thus causing a decrease in consumption
B)Issues debt, thus making it more difficult for the private sector to issue debt
C)Prints money, which displaces currency.
D)Does all of the above
16
According to Joan Robinson, the "second crisis" in economic theory was:
A)The challenge to economic orthodoxy during the Great Depression
B)When classical economic theory could not explain the cause of the Great Depression
C)Concerned with the question of what types of programs the federal government should increase spending on
D)All of the above
17
President George W. Bush favored the following fiscal policy to cure the recession of 2001:
A)Issued a tax cut
B)Increased government spending
C)Increased government transfers
D)Raised in taxes





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