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Economics Multiple Choices




Question;1. The Keynesians would recommend;A. Higher taxes when there is excess;aggregate demand;B. Lower government expenditures when;there is a shortfall in aggregate demand;C.Reliance on the market rather than;the government for the adjustment when an undesirable level of aggregate demand;occurs;D. Lower taxes when there is excess;aggregate demand;2. which of the following would cause;both an increase in the price level and an increase in real output?;A. A tax hike;B. Decrease in productions cost;C. An increase in transfer payments;D.A decrease in government spending;3. Assume the economy is operating at;full employment. Which of the following policy actions will allow aggregate;spending to increase but will not increase the size of the government in the;process?;A. Increase government spending and;leave tax rates unchanged;B.Decrease tax rates and leave;government spending unchanged;C. Increasing government spending and;taxes by the same amount;D.Decrease government spending by more;than an increase in taxes;4. If the aggregate demand increases by;the amount of the recessionary GDP gap and the aggregate supply is upward;sloping;A. The economy will move to full;employment;B. An AD surplus will occur;C.A recessionary GDP gap will still;exist;D. An inflationary GDP gap will develop;5. Assume the MPC is 0.75.The change in;total spending for the economy due to $150 billion government spending increase;is;A. $75 billion;B. $150 billion;C. $600 billion;D. $750 billion;6. To eliminate an AD shortfall of $120;billion when the economy has an MPC of 0.75,the government should decrease;taxes by;A. $400billion;B. $120billion;C. $30 billion;D. $40 billion;7. The fiscal stimulus associated with a;tax cut is;A. The same as the stimulus associated;with an increase in transfer payment.;B. The same as the stimulus associated;with a decreased in transfer payment;C.Less than the stimulus associated with;the increase in transfers? payments;D. Greater than the stimulus associated;with an increase in government spending;8. Assume the MPC is 0.60, if the;government cuts spending by $10billion and cuts taxes by $10 billion;simultaneously, the federal budget will;A. Not change and the aggregate demand;unchanged;B. Not change and the aggregate demand;will decrease by $10billion;C. Not change and aggregate demand will;increase by $10billion;D. Decrease by $10billion and the;aggregate demand will decrease by $10billion;9. Suppose the government decides to;increase taxes by $20 billion in order to increase social security benefits by;the same amount.if prices remain at the current levels, this combined;tax-transfer policy will;A.Leave aggregate demand unchanged;B.Increase aggregate demand by $20;billion.;D.Increase aggregate demand more than $20;billion after all multiplying effects.;D. Decrease aggregate demand by;$20billion;10. The crowding out effect refers to a;decrease in;A. Consumption or investment as a result;of an increase in government borrowing;B. Investment resulting from an increase;in consumption and a decrease in savings;C. Government spending as a result from;a decrease in taxes;D. Consumption resulting from an;increase in investment;11. Which of the following is an;appropriate fiscal prescription for the government to follow?;A. Deficit reduction during a recession;B. Deficit reduction where there is;excess AD;C. Deficit expansion in an inflationary;gap;D. Deficit reduction during war;12. Which of the following is more;likely to cause budget surplus?;A. Fiscal restraint when an economy is;in recession;B. Fiscal restraint when the economy is;booming;C. Fiscal stimulus when the economy is;in recession;D. Balancing the budget when the economy;is in recession;13. Automatic stabilizers tend to;stabilize the level of the economy activity because they;A. Are changed quickly by the Congress;B.;Increase the size of the multiplier;C. Increase spending during recessions;and reduce spending inflationary periods;D. Control the rate of change in prices;14. The structural deficit represents;A. Federal revenues at full employment;minus federal expenditures at full employment under the current fiscal policy.;B. Federal Reserves minus expenditures;under current fiscal policy at current output;C. A measure in the size of recessionary;or inflationary gaps;D. The differences between expenditures;at full employment and expenditures at cyclical employment;15. The major reason why budgets;deficits were reduced during the 1990s and why there was a budget surplus in;1998-2000 is because of;A. President Clinton?s deficit reduction;policies;B. The significant reductions in federal spending;C. Structural surpluses during the;period;D. The growth of the U.S. economy;16. The national debt;A.Is paid of each fiscal year when the;debt is refinanced;B. Will never be paid off in any given year;but it will be entirely paid when it is refinanced over a number of years.;C. Will be paid off when the budget is;finally balanced;D. Equals the dollar amount of;outstanding U.S Treasury bonds;17. The US federal debt that accumulated;between 1970 and 1997;A. Caused economic significant damage to;the US economy;B.Is an asset and liability to US;economy;C. Occurred at the expense of foreign;sector;D. Occurred without an increase in the;size of the government sector;18. Which of the following is true;concerning the external financing of the debt?;A. It shifts production possibilities to;the right;B. It allows us to get more public;sectors goods by cutting back private sectors goods;C. It must be repaid with exports of;real goods and services;D. The true burden falls to current;generation;19. Savings accounts are included in;A.M1, M2, and M3;B.M1 but not M2;C.M2 but not M3;D.M2 and M3 but not M1;20. Suppose Oscar withdraws $100 from;his checking account and deposits it into savings account.this transaction;causes M1 to;A. Increase by $100 and M2 remains the;same;B. Decrease by $100 and M2 remains the;same;C. Decrease by 100 and M2 to increase by;$100;D. Remain the same and M2 to increase by;$100;21.Suppose a banking system has;$120million in deposits, a required reserve ratio of 20 percent and total bank;reserves for the whole system of $100million.Then the potential deposit;creating for the whole system is equal to;A. $120million;B. $76million;C. Zero;D. $380million;22. Suppose all the banks in the Federal;Reserve System have $500 billion in transactions accounts, the required reserve;ratio is 0.30 and there are no excess reserves in the system If the required;reserve ratio is changed to 0.25, then the total lending capacity of the system;is increased by;A. $1billion;B. $30 billion;C. $25 billion;D. $100 billion;23. A change in the reserve requirement;is the tool used least often by Federal Reserve because it;A. Does not affect bank reserves;B. Can cause abrupt changes in the money;supply;D. Does not affect the money multiplier;D. Has no impact on the lending capacity;of the banking system;24. If excess reserve is too large a;bank is likely to;A. Buy government securities;B. Borrow in the federal funds market;C. Borrow reserves from the discount;window;D. Buy stock in a corporation;25. The Federal Reserve can increase the;federal funds by;A. Selling bonds which causes market;interest rates to rise;B. Buying bonds;C. Simply announcing a higher rate since;the Fed has direct control of this interest rate;D. Changing the money multiplier;26. In order to increase the money;supply the Fed can;A. Raise the reserve requirements;increase the discount rate, or sell bonds.;B. Raise the reserve requirements;increase the discount rate, or buy bonds.;C. Lower the reserve requirements;increase the discount rates, or buy bonds;D. Lower the reserve requirements;decrease the discount rate, or buy bonds;27.During periods of hyperinflation;money does not hold its value long enough to make everyday market purchases therefore;people hold as little as possible for a;short as time as possible. This description implies that the;A. Transactions demand for money has decreased;B. Precautionary demand for money has;increased;C.Speculative demand for money has;decreased;D. Portfolio demand for money has;decreased;28. The market demand for money is;A. A horizontal curve, where the;quantity demanded changes but the interest is constant;B. An upward sloping demand curve, where more money is held when interest rates;goes higher.;C. A vertical demand curve, where the;same amount of money is held regardless of the interest rate;D. A downward sloping demand curve;where money is held at lower interest rate.;29. Which of the following shifts in the;demand for money or supply of money is most likely to occur as the result of;recession?;A. The demand curve shifts leftward;B.The supply curve shifts leftward;C. The demand curve shifts rightward;D. The supply curve shifts rightward;30. Ceteris paribus, if the Fed sells;bonds through open market operations, the money;A. Supply curve should shift rightward;B. Supply curve should shift leftward;C. Demand curve should shift rightward;D. Demand curve should shift leftward;31. The most visible market signal of;the fed?s activity is the;A. Equilibrium interest rate;B. Federal funds rate;C. Discount rate;D. Prime lending rate;32. If the fed?s objectives to stimulate;the economy, which of the following gives the correct sequence of events?;A.The money supply increases, interest;rate decrease, investment increases, AD increases;B. The money supply increases, interest;rate decrease, investment increases, AS increases;C. The money supply decreases, interest;rate increase, investment decreases, AD decreases;D. The money supply decreases, interest;rate increase, investment increases, AD increases;33. The Fed could sell bonds in the open;market in an effort to keep interest rates constant when;A. The discount rate increases.;B. The money demand increases.;C. The reserve requirement increases;D. Money demand decreases;34. Which shift is mostly to occur if;the Fed increases the discount rate?;A.AS should shift leftward;B.AS should shift rightward;C.AD should shift leftward;D.AD should shift rightward;35. All the following impact the;effectiveness of the Fed policy except;A. How well the Treasury follows the;Fed?s direction for releasing money;B. The willingness or the reluctance of;banks to lend funds;C. Global sources of money;D. The responsiveness of interest rates;to changes in the money supply;36. Which of the following is true about;monetary policy in the liquidity trap?;A. Monetary policy will be unable to;reduce interest rates further to stimulate investments;B. The opportunity cost of holding money;is relatively high at interest rates implied by the liquidity trap.;C. An expansion of the money supply will;have the perverse effect of raising interest rates when the economy is in the;liquidity trap;D. The demand for money is;interest-inelastic in the liquidity trap.;37. If the real output increases by 5;percent per year and velocity is stable, in order to keep the price level;stable;A. The interest rate must increase by 5;percent per year;B. Velocity must increase by 5 percent;per year;C. The money supply must increase by 5;percent per year;D. The money supply must increase by;more than 5 percent per year because nominal output is greater than 5 percent;38. Assuming effective price controls;and a constant velocity of money, a decrease in the discount rate could;temporally result in;A. Higher V;B. Higher Q;C. Higher P;D. Lower M;39. The trade ?off between unemployment;and inflation originates in the;A. Vertical AS curves;B. Downward sloping AS curve;C. Upward sloping AD curve;D. Upward sloping AS curve.;40. Which of the following will cause;the Phillips curve to shift to the left?;A. Attacks from terrorists;B. Increasing regulation in the economy;C.Increasing the marginal tax rate on;excess profit;D. Job-search assistance;41. Macro misery diminished during the;first Reagan administration which means that the Phillips curve;A. Maintained its position despite;important changes in the composition of the labor force;B. Shifted to the left, implying an easy;of the tradeoff between inflation and unemployment;C. Shifted the right, implying that stagflation;had become a more acute problem than before.;D. Flattened out, implying that some;amount of inflation is consistent with any rate of unemployment;42. A decrease in marginal tax rates;will cause entrepreneurship to ------ and AS to shift to the ---------;A. Increase, left;b. Increase, right;C. Decrease, left;D. Decrease, right;43. Supply- siders believe;A. Tax rebates shifts the Phillips curve;to the left;B. Tax rebates have no effect on work;effort;C. Tax rebates provide greater;incentives for work, production and investments;D. Tax rebates directly affect the;supply side of the economy;44. For a given amount of fiscal restraint;an open economy will experience, ceteris paribus, a shift in the aggregate;demand is;A. Greater than in closed economy;resulting in a larger decrease in GDP;B. Less than in a closed economy;resulting in larger decrease in GDP;C. Greater than in closed economy;resulting in a smaller decrease in GDP;D. Less than in a closed economy resulting;in a smaller decrease in GDP;45. Advocates of ?fixed policy rules?;believe;A. That fine-tuning can improve macro;outcomes;B. In constant increases in the money;supply and balanced federal budgets;C. That the economy is better off using;discretionary policy;D. That politicians can best determine;when to stimulate and restrain the economy


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