Economics Today and Tomorrow

Chapter 17: Stabilizing the National Economy

Stabilizing the National Economy

1
The underground economy makes it difficult to accurately measure unemployment because __________
A)it consists of people whose jobs are sensitive to technological advances or changes in the marketplace.
B)it consists of people whose unemployment is caused by changes in the seasons or weather.
C)it consists of people who do not follow federal and state laws with respect to reporting earnings.
D)statisticians cannot possibly interview every person in and out of the labor force.
2
All of the following are types of unemployment EXCEPT __________
A)frictional.
B)structural.
C)cyclical.
D)recessional.
3
Which of the following statements about demand-pull inflation is NOT true?
A)Demand-pull inflation could occur if major corporations decreased their investments for expansion.
B)Demand-pull inflation could occur if the President announced the largest tax cut in history.
C)Demand-pull inflation could occur if the federal government dramatically increased spending.
D)Demand-pull inflation could occur if the Fed dramatically decreased reserve requirements.
4
Which of the following is an example of cost-push inflation?
A)aggregate demand increases by 25 percent
B)automakers raise prices on compact cars to match prices of imports and increase their profits
C)automakers seek to triple their manufacturing capacity to meet demand
D)the Fed buys large quantities of Treasury bills
5
The government's use of taxation and spending policies to affect overall business activity is called __________
A)monetary policy.
B)circular flow of income.
C)Keynesian theory.
D)fiscal policy.
6
According to the circular flow of income, income flows from businesses to households in all of the following forms EXCEPT as __________
A)interest.
B)rents.
C)wages.
D)transfer payments.
7
In the circular flow of income, leakages are activities that __________
A)result in increased aggregate demand.
B)result in an increase in overall business activity.
C)remove income from the economy.
D)place more dollars in the hands of consumers.
8
To combat unemployment, the federal government has used fiscal policy in all the following ways EXCEPT __________
A)creating the Federal Art Project and the Federal Writers Project during the 1930s.
B)increasing taxes.
C)encouraging business expansion by giving tax credits.
D)creating job programs to hire unemployed workers.
9
To stabilize the economy, monetarists believe that __________
A)fiscal policy should be used to stimulate or slow the economy.
B)the government should operate with a federal budget deficit.
C)injections and leakages should balance in the circular flow of economic activity.
D)the Fed should follow a monetary rule, allowing the money supply to grow at a given percent each year.
10
Monetarists' criticisms of fiscal policy include all of the following EXCEPT that __________
A)the economy is too complex for fiscal measures to successfully adjust investment or spending.
B)no single government body designs and implements fiscal policy.
C)fiscal policy is too complex and difficult to implement.
D)there is a time lag between enacting the policy and its effective date.
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