Download Practice 20

Mods 20-21 practice
Multiple Choice
Identify the choice that best completes the statement or answers the question.
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1. Keynesians argue that a lack of spending is:
A. not possible in an economy.
B. possible and can lead to prolonged recessions.
C. not helped by monetary or fiscal policy efforts.
D. only evident during expansions.
E. a key indicator of an economic boom.
Figure 20-1: Short-Run Equilibrium
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2. Use the “Short-Run Equilibrium” Figure 20-1. The accompanying graph reflects a short run inflationary
gap. Using the labeling on the graph, the size of the inflationary gap is equal to:
A. P2 – P1.
B. Y1 – YP.
C. P2 – P0.
D. P1 – P0.
E. Yp/Y1
Figure 20-4: Inflationary and Recessionary Gaps
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3. Use the “Inflationary and Recessionary Gaps” Figure 20-4. The movement from AD3 to AD1 would be
caused by:
A. increased government purchases.
B. increased government transfers.
C. increasing the money supply.
D. decreased taxes.
E. increased taxes.
Figure 20-5: Fiscal Policy I
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4. Use the “Fiscal Policy I” Figure 20-5. Suppose that this economy is in equilibrium at E2. If there is a
decrease in government purchases, then:
A. AD2 will shift to the left, causing an increase in the price level and a decrease in real GDP.
B. AD2 will shift to the left, causing a decrease in the price level and a decrease in the real
GDP.
C. AD1 will shift to the right, causing an increase in the price level and an increase in real
GDP.
D. AD1 will shift to the right, causing a decrease in the price level and an increase in real
GDP.
E. AD2 will shift to the left, causing a decrease in the price level and a increase in the real
GDP.
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5. Use the “Fiscal Policy I” Figure 20-5. Suppose that this economy is in equilibrium at E2. If there is an
increase in government transfers, then:
A. AD2 will shift to the right, causing an increase in the price level and an increase in real
GDP.
B. AD2 will shift to the left, causing a decrease in the price level and a decrease in the real
GDP.
C. AD1 will shift to the right, causing an increase in the price level and an increase in real
GDP.
D. AD1 will shift to the right, causing a decrease in the price level and an increase in real
GDP.
E. AD2 will shift to the right, causing an increase in the price level and a decrease in real
GDP.
Figure 20-8: Fiscal Policy Options
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6. Use the “Fiscal Policy Options” Figure 20-8. If the aggregate demand curve is AD", of the choices below,
the most appropriate discretionary fiscal policy would be to:
A. increase government spending and decrease income tax rates.
B. increase government spending and maintain income tax rates.
C. decrease government spending and decrease income tax rates.
D. decrease government spending and maintain income tax rates.
E. increase government spending and increase transfer payments.
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7. Discretionary fiscal policy refers to:
A. any changes in interest rates.
B. any change in money supply.
C. changes in government spending or taxes to close a recessionary or inflationary gap.
D. changes in taxes to account for externalities and control pollution.
E. manipulation of foreign exchange rates.
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8. An economy is currently in the midst of a recession. An example of a government policy aimed at moving the
economy back to potential GDP is:
A. an increase in taxes.
B.
C.
D.
E.
____
an increase in government spending on infrastructure improvements.
an increase in the property tax.
a decrease in unemployment benefits.
a decrease in military spending.
9. If the MPC is 0.9, then the government spending multiplier is:
A. 0.1.
B. 1.11.
C. 9.
D. 10.
E. 5.
____ 10. Government spending increases to provide funding for tuition assistance for qualified college students. Which
of the following is likely to result?
A. Automatic stabilizers will increase the contractionary impact of the decrease in aggregate
demand.
B. Automatic stabilizers will decrease the contractionary impact of the increase in aggregate
demand.
C. Automatic stabilizers will increase the expansionary impact of the increase in aggregate
demand.
D. Automatic stabilizers will decrease the expansionary impact of the increase in aggregate
demand.
E. Automatic stabilizers will have no impact on the increase in government spending and
aggregate demand.
Mods 20-21 practice
Answer Section
MULTIPLE CHOICE
1. ANS:
SKL:
2. ANS:
SKL:
3. ANS:
SKL:
4. ANS:
SKL:
5. ANS:
SKL:
6. ANS:
SKL:
7. ANS:
SKL:
8. ANS:
SKL:
9. ANS:
SKL:
10. ANS:
SKL:
B
PTS:
Fact-Based
B
PTS:
Critical Thinking
E
PTS:
Critical Thinking
B
PTS:
Critical Thinking
A
PTS:
Critical Thinking
D
PTS:
Critical Thinking
C
PTS:
Definitional
B
PTS:
Concept-Based
D
PTS:
Critical Thinking
D
PTS:
Analytical Thinking
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 21
1
DIF: D
REF: Module 21