Download Practice Test – Chapters 11,12,13, Multiple Choice Identify the

Practice Test – Chapters 11,12,13,
ultiple Choice
entify the choice that best completes the statement or answers the question.
___
. Expansionary fiscal policy actions include ____ government spending and/or ____ taxes, while contractionary fiscal
policy actions include ____ government spending and/or ____ taxes.
a. increasing; increasing; decreasing; decreasing
b. decreasing; decreasing; increasing; increasing
c. increasing; decreasing; increasing; decreasing
d. decreasing; increasing; increasing; decreasing
e. increasing; decreasing; decreasing; increasing
___
Which of the following is an example of crowding out?
a. A decrease in the rate of growth of the stock of money decreases GDP.
b. A deficit causes an increase in interest rates, which causes a decrease in investment
spending.
c. An increase in tariffs causes a decrease in imports.
d. A decrease in government housing subsidies causes an increase in private spending on
housing.
___
Fiscal policy is
a. the money supply policy that the Fed pursues to achieve particular economic goals.
b. the spending and tax policy that the government pursues to achieve particular
macroeconomic goals.
c. the investment policy that businesses pursue to achieve particular macroeconomic goals.
d. the spending and saving policy that consumers pursue to achieve particular
macroeconomic goals.
e. none of the above
___
. Which best describes the Keynesian transmission mechanism when the money supply rises?
a. The interest rate rises; this in turn cuts back investment spending, which in turn raises total
expenditures and shifts the AD curve rightward.
b. The interest rate falls; this in turn stimulates investment spending, which in turn raises
total expenditures and shifts the AD curve leftward.
c. The interest rate falls; this in turn stimulates investment spending, which in turn raises
total expenditures and shifts the AD curve rightward.
d. The interest rate falls; this in turn stimulates investment spending, which in turn lowers
total expenditures and shifts the AD curve leftward.
___
. Monetary policy is
a. the policy concerning changes in the money supply that is pursued to achieve particular
macroeconomic goals.
b. the expenditures and taxation policy that the government pursues to achieve particular
macroeconomic goals.
c. the investment policy that businesses pursue to achieve particular macroeconomic goals.
d. the spending and saving policy that consumers pursue to achieve particular
macroeconomic goals.
e. the spending policy that the Treasury pursues to achieve particular macroeconomic goals.
___
. Theoretically, to eliminate a recessionary gap, the Fed could ____ the money supply, and to eliminate an inflationary
gap, the Fed could ____ the money supply.
a. increase; decrease
b. increase; increase
c. decrease; increase
d. decrease; decrease
e. Fiscal policy is carried out primarily by:
A) the Federal government.
B) state and local governments working together.
Answer: A
C) state governments alone.
D) local governments alone.
In the Employment Act of 1946, the Federal government:
A) applied the unemployment compensation program to intrastate workers.
B) agreed to subsidize unemployed workers to the extent of 50 percent of their average
incomes.
C) committed itself to accept some degree of responsibility for the general levels of
employment and prices.
D) agreed to hire, through public works programs, any employees who cannot find jobs
with private industry.
Answer: C
Discretionary fiscal policy refers to:
A) any change in government spending or taxes that destabilizes the economy.
B) the authority that the President has to change personal income tax rates.
C) changes in taxes and government expenditures made by Congress to stabilize the
economy.
D) the changes in taxes and transfers that occur as GDP changes.
Answer: C
Fiscal policy refers to the:
A) manipulation of government spending and taxes to stabilize domestic output,
employment, and the price level.
B) manipulation of government spending and taxes to achieve greater equality in the
distribution of income.
C) altering of the interest rate to change aggregate demand.
D) fact that equal increases in government spending and taxation will be contractionary.
Answer: A
Discretionary fiscal policy is so named because it:
A) is undertaken at the option of the nation's central bank.
B) occurs automatically as the nation's level of GDP changes.
C) involves specific changes in T and G undertaken expressly for stabilization at the
option of Congress.
D) is invoked secretly by the Council of Economic Advisers.
Answer: C
Contractionary fiscal policy is so named because it:
A) involves a contraction of the nation's money supply.
B) necessarily reduces the size of government.
C) is aimed at reducing aggregate demand and thus achieving price stability.
D) is expressly designed to contract real GDP.
Answer: C
Suppose the government purposely changes the economy's full-employment budget from a deficit
of 3 percent of real GDP to a surplus of 1 percent of real GDP. The government is
engaging in a(n):
A) expansionary fiscal policy.
C) neutral fiscal policy.
B) contractionary fiscal policy.
D) high-interest rate policy.
Answer: B
92.
Suppose the government purposely changes the economy's fullemployment budget from a deficit of 0 percent of real GDP to a deficit of 3 percent of real
GDP. The government is engaging in a(n):
A) expansionary fiscal policy.
C) neutral fiscal policy.
B) contractionary fiscal policy.
D) low-interest rate policy.
Answer: A
An expansionary U.S. fiscal policy that drives up U.S. interest rates is most likely to:
A) decrease the foreign demand for dollars and appreciate the international value of the
dollar.
B) decrease the foreign demand for dollars and depreciate the international value of the
dollar.
C) increase the foreign demand for dollars and appreciate the international value of the
dollar.
D) increase the foreign demand for dollars and depreciate the international value of the
dollar.
Answer: C
Which one of the following best describes the net export effect associated with an expansionary
U.S. 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.
Answer: D
Money functions as:
A) a store of value.
above.
Answer: D
B) a unit of account.
C) a medium of exchange.
D) all of the
If you place a part of your summer earnings in a savings account, you are using money primarily as
a:
A) medium of exchange. B) store of value. C) unit of account. D) standard of
value.
Answer: B
Which of the following is not part of the M2 money supply?
A) money market mutual fund balances
B) money market deposit accounts
deposits
Answer: D
The M2 money supply includes:
A) stock certificates.
B) corporate bond certificates.
C) the cash value of life insurance policies.
D) individual shares in money market mutual funds.
Answer: D
C) currency
D) large ($100,000 or more) time
A $20 bill is a:
A) gold certificate.
Answer: D
B) Treasury note.
C) Treasury bill.
D) Federal Reserve Note.
In which of the following situations is it certain that the quantity of money demanded by the public
will decrease?
A) nominal GDP decreases and the interest rate decreases
B) nominal GDP increases and the interest rate decreases
C) nominal GDP decreases and the interest rate increases
D) nominal GDP increases and the interest rate increases
Answer: C
Reserves must be deposited in the Federal Reserve Banks by:
A) only commercial banks which are members of the Federal Reserve System.
B) all depository institutions, that is, all commercial banks and thrift institutions.
C) state chartered commercial banks only.
D) federally chartered commercial banks only.
Answer: B
Open-market operations refer to:
A) purchases of stocks in the New York Stock Exchange.
B) the purchase or sale of government securities by the Fed.
C) central bank lending to commercial banks.
D) the specifying of loan maximums on stock purchases.
Answer B
Open-market operations change:
A) the size of the monetary multiplier, but not commercial bank reserves.
B) commercial bank reserves, but not the size of the monetary multiplier.
C) neither commercial bank reserves nor the size of the monetary multiplier.
D) both commercial bank reserves and the size of the monetary multiplier.
Answer: B
When the reserve requirement is increased:
A) required reserves are changed into excess reserves.
B) the excess reserves of member banks are increased.
C) a single commercial bank can no longer lend dollar-for-dollar with its excess reserves.
D) the excess reserves of member banks are reduced.
Answer: D
The discount rate is the interest:
A) rate at which the central banks lend to the U.S. Treasury.
B) rate at which the Federal Reserve Banks lend to commercial banks.
C) yield on long-term government bonds.
D) rate at which commercial banks lend to the public.