Liberty University ECON 214 exam 3 complete solutions correct answers A+ work

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Question 1 During the Great Recession, government outlays were _________ and government revenues were _________ their longrun averages over the period 1960–2012.

Question 2 Use the following example to answer the questions that follow: Imagine that you deposit $25,000 in currency (which you had been storing in your closet), into your checking account at the bank. Assume that this institution has a required reserve ratio of 25%. As a result of this deposit, by how much will the bank’s excess reserves increase?

Question 3 Which federal budget category’s portion of total government outlays has decreased since 1960?

Question 4 A budget is:

Question 5 You receive a $1,000 check from your parents for your birthday, and you deposit this in a bank that faces a 10% reserve ratio. What is the consequence if the bank then deposits your check at the Federal Reserve?

Question 6 The federal budget deficit has grown so quickly in the past 5–10 years because of:

Question 7 Why did tax revenues fall so sharply after 2007?

Question 8 Refer to the following figure to answer the questions that follow According to the figure, if the government increases spending by only $4 billion in an effort to shift aggregate demand enough to return to longrun equilibrium, the marginal propensity to consume must be equal to:

Question 9 Refer to the following table to answer the questions that follow. Using the table, what is the value of M2 that is not part of M1?

Question 10 If Ann were to convert some of her checkable deposits into a certificate of deposit, which of the following changes would take place?

Question 11 Which of the following diagrams shows what supplyside fiscal policy initiatives try to do to the longrun aggregate supply curve?

Question 12 When an economy experiences inflation, the value of money:

Question 13 Assume that the government is currently balancing the national budget so that outlays equal tax revenue. Then the economy starts into an expansion, and the government decides to decrease government spending by $50 billion. As a result:

Question 14 How is owner’s equity calculated?

Question 15 If the marginal propensity to consume is equal to 0.75, the spending multiplier is equal to:

Question 16 A marginal tax rate is:

Question 17 If current savings increases the same amount as the federal stimulus:

Question 18 Some people argue that social insurance taxes should be increased to remedy the fiscal problems faced by Social Security. What is a potential unintended consequence of this proposed solution?

Question 19 Assume that the government is currently balancing the national budget so that outlays equal tax revenue. Then the economy slips into recession, and the government decides to increase government spending by $50 billion. The government must pay for this by borrowing; it must sell $50 billion worth of Treasury bonds. As a result:

Question 20 In a fiat money economy, M1 includes currency as well as:

Question 21 One proposed solution to the funding problems faced by Social Security and Medicare is to implement meanstesting, so that only those with limited retirement funds would qualify for the government benefits. An unintended consequence of such a requirement may be:

Question 22 Monetary policy is:

Question 23 What is true about banks in a fractional reserve banking system?

Question 24 Federal government spending has grown quickly since 2007 primarily because of:

Question 25 The x axis for the Laffer curve represents:

Question 26 _____________ would be considered a mandatory outlay in your monthly budget.

Question 27 When gasoline gallons are priced in terms of number of seashells, seashells serve as:

Question 28 If a bank has a required reserve ratio of 15% and has required reserves of $225,000,000, how much does the bank hold in deposits?

Question 29 The purchase of existing U.S. Treasury securities by the Federal Reserve:

Question 30 Which of the following is an example of crowdingout?

Question 31 At ___________ tax rates, ___________ in those tax rates lead to ___________ in total tax revenue.

Question 32 Refer to the following table to answer the questions that follow. Using the table, what is the value of M1?

Question 33 Fiscal policy includes:

Question 34 Which of the following statements about traveler’s checks is true?

Question 35 In which of the following situations does money serve as a store of value?

Question 36 Which of the following would be the theoretical outcome of contractionary fiscal policy in the following aggregate demand–aggregate supply model, where LRAS is longrun

aggregate supply and SRAS is shortrun aggregate supply?

Question 37 As part of the Economic Stimulus Act of 2008, the typical family of four received:

Question 38 The first of two significant fiscal policy initiatives enacted by the government during the Great Recession, signed in February 2008 by President George W. Bush, was the:

Question 39 Government programs that automatically implement countercyclical fiscal policy in response to economic conditions are called:

Question 40 An illustration of the relationship between tax rates and tax revenues is called:

Question 1 Using a credit card is most like:

Question 2 The bank in your hometown has decided to double the number of its local branch offices. How will this affect the bank’s balance sheet?

Question 3 A U.S. federal government budget deficit occurs when:

Question 4 Suppose you land a job with Google right out of college. Your economics training is very valuable to them, so you receive a starting annual salary of $65,000. What is the total amount of social insurance taxes you will be responsible for after your first year of work?

Question 5 An example of the multiplier effect is when:

Question 6 The funds used for payments to Medicare recipients come primarily from:

Question 7 If the marginal propensity to consume is equal to 0.75, the spending multiplier is equal to:

Question 8 Refer to the following table to answer the questions that follow. Using the table, what is the marginal income tax rate of a $5,000 raise for someone who currently makes $85,650 per year?

Question 9 Which of the following is NOT considered part of M2?

Question 10 A budget is:

Question 11 The first of two significant fiscal policy initiatives enacted by the government during the Great Recession, signed in February 2008 by President George W. Bush, was the:

Question 12 By 1918, the top marginal income tax rate in the United States rose to:

Question 13 Why would a government want to use expansionary fiscal policy to help stimulate aggregate demand if, in the long run, we would expect prices to adjust and the economy to return to its longrun equilibrium on its own?

Question 14 What function of money is highlighted when I put cash under my mattress to have on hand for unexpected emergencies?

Question 16 The Laffer curve is:

Question 17 Supplyside fiscal policy involves the use of:

Question 18 The largest component of M2 is:

Question 19 Use the following example to answer the questions that follow: Imagine that you deposit $25,000 in currency (which you had been storing in your closet), into your checking account at the bank. Assume that this institution has a required reserve ratio of 25%. As a result of this deposit, by how much will the bank’s required reserves increase?

Question 20 An implementation lag happens because:

Question 21 Some proponents of entitlementprogram reform suggest indexing Social Security benefits to the consumer price index (CPI):

Question 22 Which of the following would NOT increase the supply of money in a fiat money economy?

Question 23 If the required reserve ratio is 10%, what is the simple deposit multiplier?

Question 24 What are federal funds?

Question 25 Use the following table to answer the questions that follow. According to the table, which country appeared to be in the best fiscal shape in 2012?

Question 27 In economic terms, how would you state what has happened when your neighbor says he is unwilling to help you mow your lawn because you are unwilling to help him teach his kids how to speak with a British accent?

Question 28 One argument for tax cuts when the government is running a budget deficit is:

Question 29 For something to be considered money, it must:

Question 30 Refer to the following table to answer the questions that follow. Using the table, what is the value of M2 that is not part of M1?

Question 31 Fiscal policy includes:

Question 32 ___________ is an example of an automatic stabilizer.

Question 33 A marginal tax rate is:

Question 34 Fiscal policy is:

Question 35 The “crowdingout” critique is based on the idea that:

Question 36 The United States has a:

Question 37 According to the U.S. Federal Tax Rates chart from the textbook (Figure 15.6), a person earning $100,000 in a given year is in the 28% tax bracket. How much will this individual owe in taxes for that year?

Question 38 Social Security and Medicare spending continue to grow and take up larger shares of the federal budget because:

Question 39 A progressive income tax system is one in which:

Question 40 In most nations, one or more governing bodies must approve government spending or new tax policies. This causes ___________ between setting fiscal policy and seeing its effects.

1. The highest marginal tax rate in U.S. history was:2. The highest marginal tax rate in 1913 was:3. By 1918, the top marginal income tax rate in the United States rose to:4. The United States has a:

5. According to the table, the country with the highest average yearly budget deficit over the time period as a percentage of the yearly increase in GDP is:

6. According to the table, the country with the largest decrease in the debt-to-GDP ratio over the time period is:

7. According to the table, which country appeared to be in the worst fiscal shape in 2012?

8. According to the table, which country appeared to be in the best fiscal shape in 2012?

9. Reforming entitlement programs is difficult because:10.One proposed solution to the funding problems faced by Social Security and

Medicare is to increase the retirement age from 67 to 70. Although this would mean billions of dollars in savings for these federal programs, an unintended consequence may be:

11.A progressive income tax system is one in which:12.Why do wealthy citizens contribute much more tax revenues to the government

than poor citizens?13.A U.S. federal government budget surplus occurs when:14.Over the next 20 years, the number of workers per Social Security beneficiary is

predicted to be:15.A marginal tax rate is:16.Suppose you return to college and earn an MBA, after which you get an upper-

management position with Yum! Brands. If your starting salary is $125,000, and

the percentages are the same as they were in 2012, how much will you owe in Social Security taxes?

17.The poorest 40% of households in the United States:18.Which federal budget category’s portion of total government outlays has

decreased since 1960?19.What would happen if a country defaulted on its sovereign debt?20.Discretionary government spending includes payments made for:

21. Using the table, what is the marginal income tax rate of a $5,000 raise for someone who currently makes $67,000 per year?

22.Using the table, what is the marginal income tax rate of a $5,000 raise for someone who currently makes $85,650 per year?

23.Using the table, what is the total payroll tax bill (assume zero state and local income taxes) for someone who makes $67,000 per year?

24.Using the table, what is the new average tax rate for a person who currently makes $80,000 per year and receives a $10,000 raise?

25.The funds used for payments to Medicare recipients come primarily from:26.Which of the following is not a revenue source for the U.S. federal government?27.Which of the following is considered discretionary government spending?28.Payroll taxes:29.Suppose you land a job with Google right out of college. Your economics training

is very valuable to them, so you receive a starting annual salary of $65,000. What is the total amount of social insurance taxes you will be responsible for after your first year of work?

30.Suppose you graduate with an accounting degree and then become a certified public accountant. You work for a big firm, but are offered a chance to prepare tax documents for your city government as an independent contractor. The city offers to pay you a consulting fee of $10,000. When deciding whether to accept the additional work, the most important tax factor in your decision is:

31.Why do Social Security and Medicare pose problems for the federal government budget?

32.Suppose you are offered a job with Amazon upon graduation. Your starting salary will be $70,000, which will put you in the 25% federal income tax bracket. The total amount of income taxes you pay is $13,530. Your average tax rate is approximately:

33.Why was the world so concerned about Greece defaulting on its debt?34.The austerity measures imposed on Greece in 2011:35.the most relevant tax rate for making decisions about earning additional income

is the:36.Why is a budget deficit not necessarily a bad thing?37.According to the U.S. Federal Tax Rates chart from the textbook (Figure 15.6), a

person earning $100,000 in a given year is in the 28% tax bracket. How much will this individual owe in taxes for that year?

38.Some people argue that social insurance taxes should be increased to remedy the fiscal problems faced by Social Security. What is a potential problem with this proposed solution?

39.The number of workers per Social Security beneficiary in 1960 was approximately:

40.The government withdraws social insurance taxes from the paychecks of workers to:

41.Which of the following might be a good reason for running a budget deficit?42.In 2012, revenue from corporate income taxes totaled approximately:43.What is the most appropriate way to compare budget deficits/surpluses across

time?44.Excise taxes are levied on:45.Budget deficits tend to:46.Why are interest payments considered mandatory spending in the federal

budget?47.The U.S. government could reduce its budget deficit by:48.Some proponents of entitlement-program reform suggest indexing Social

Security benefits to the consumer price index (CPI):49.____________ a government-administered retirement program.50.Social Security and Medicare are funded by the collection of:51.The most recent federal budget surplus occurred:52.The federal government started running a budget surplus in 1998. By 2002, the

budget surplus had turned into a budget deficit. Why do you think the budget deficit returned in 2002?

53.Social Security and Medicare spending continue to grow and take up larger shares of the federal budget because:

54. Which country faces the most severe fiscal challenges—in terms of debt-to-GDP ratio—according to the accompanying table?

55.Why is foreign government ownership of U.S. debt not currently a huge concern among many economists?

Question 1 The federal government started running a budget surplus in 1998. By 2002, the budget surplus had turned into a budget deficit. Why do you think the budget deficit returned in 2002? .

Question 3 Refer to the following table to answer the questions that follow. Using the table, what is the value of M1?

Question 4 The Federal Reserve System was created in:

Question 7 If an initial increase in government spending of $100 billion leads to a total increase of $400 billion in income, the marginal propensity to consume in the economy is:

Question 11 In a fiat money economy, money is created when:

Question 12 At ___________ tax rates, ___________ in those tax rates lead to ___________ in total tax revenue.

Question 13 The y axis for the Laffer curve represents:

Question 14 When money is acting as a medium of exchange, it:

Question 15 Which of the following is not a characteristic of fiat money?

Question 22 In reality, individuals do not deposit all of their cash into the banking system. Consequently:

Question 24 ___________ is an example of an automatic stabilizer.

Question 27 Time lags, crowdingout, and savings shifts are all:

Question 33 The new classical critique of fiscal policy asserts that:

Question 39 In which of the following situations does money serve as a store of value?

Refer to the following graph to answer the questions that follow:

____ 13. Assuming the figure represents the market for loanable funds, it would be true that:a. line 1 represents savings (supply), and line 2 represents investment (demand).b. the vertical axis represents the interest rate, and the distance between points C and D represents the

surplus of loanable funds at interest rate A.c. line 1 represents investment demand, and line 2 represents savings.d. the vertical axis represents the quantity of funds lent and borrowed, whereas the distance between

points C and D represents the shortage of loanable funds at interest rate A.e. line 1 represents the interest rate, and line 2 represents the quantity of savings.

____ 14. Smiley Myrus owns a large corporation that is building a new shopping mall in Winston-Salem, North Carolina. In all likelihood:a. Smiley’s firm is a supplier of loanable funds.b. Smiley’s firm pays a higher rate of interest than most borrowers, based on the Fisher equation.c. Smiley’s firm is a borrower of loanable funds.d. Smiley’s firm pays a lower rate of interest than most borrowers, based on the Fisher equation.e. Smiley’s firm would loan its profits to foreign entities.

____ 15. The interest rate is:a. the price of money.b. only a cost to savers.c. a return to borrowers.d. both a cost to savers and a return to borrowers.e. both a return to savers and a cost to borrowers.

____ 16. An interest rate best represents _______________ to borrowers and _______________ to savers.a. cost; returnb. return; costc. rate of change; static valued. static value; rate of changee. nominal return; real return

____ 17. You are thinking about buying a new car and will borrow $20,000 for this purchase at a 5% fixed rate for exactly one year. The lender (correctly) assumes that inflation will be 2% this year. Based on the above information and assuming you adhere to the terms of the loan:a. you will pay back the lender exactly $20,000, which will represent $19,000 of purchasing power.b. you will pay back the lender exactly $21,000, which will represent $21,000 of purchasing power.c. you will pay back the lender exactly $21,000, which will represent $21,400 of purchasing power.d. you will pay back the lender exactly $21,000, which will represent $20,600 of purchasing power.e. you will pay back the lender exactly $19,600, which will represent $20,000 of purchasing power.

____ 18. If the federal government taxes the interest rate that savers receive:a. the rate of return to savers increases because of transfer payments and people save more.

b. the demand for loanable funds increases.c. the supply of loanable funds increases.d. the supply of loanable funds decreases.e. corporations are more willing to borrow.

____ 19. You borrow $10,000 today at a nominal rate of 5%; inflation for the past 10 years has been exactly 2%. Today, inflation instantly rises to 4% and stays that way for the duration of your loan. Based on the above information and all else being equal, today:a. you are worse off because inflation has risen.b. you are better off strictly because 5% is still more than 4%.c. you are better off because you are paying back the loan with dollars that represent less purchasing

power today than the dollars you borrowed before.d. the lender is better off because the real rate of interest automatically increases when inflation

increases.e. both you and the lender are better off because real rates fall when inflation rises.

____ 20. If interest rates rise, holding all else constant, this would cause:a. an increase in both the demand and supply of loanable funds.b. a decrease in both the demand and supply of loanable funds.c. an increase in the supply of loanable funds but a decrease in the demand for loanable funds.d. an increase in the quantity supplied of loanable funds but a decrease in the quantity demanded of

loanable funds.e. an increase in the supply of loanable funds but a decrease in the demand for loanable funds.

____ 21. The Fisher equation:a. relates time preferences to the level of borrowing.b. relates nominal interest rates to the level of borrowing.c. relates real interest rates to the level of borrowing.d. relates real interest rates, nominal interest rates, and inflation.e. relates real interest rates, nominal interest rates, and the level of saving.

____ 22. The interest rate represents:a. the opportunity cost of saving.b. the opportunity cost of consumption.c. the opportunity cost of saving plus the opportunity cost of inflation.d. only the opportunity cost of taking a different job.e. the price of savings, but not investment.

____ 23. The largest inflationary gap appeared:a. in the 1960s.b. in the 1950s during the great U.S. hyperinflation.c. at the end of the 1970s and in the early 1980s.d. during the Great Recession of 2007–2009.e. in the 1990s.

____ 24. The real interest rate in 2012 was:a. about 9%.b. about 7%.c. about 5%.d. about 3%.e. a negative number.

____ 25. Assuming inflation is positive, the real interest rate:a. must always be larger than the nominal interest rate.b. must always be smaller than the nominal interest rate.c. could be larger or smaller than the nominal interest rate depending on the rate of inflation.d. would normally be larger than the nominal interest rate.e. increases exactly as fast as inflation.

____ 26. Assume deflation is occurring in a nation; the implication(s):a. are that both real and nominal interest rates are positive.b. are that both real and nominal interest rates are negative.

c. is that the nominal interest rate exceeds the real interest rate.d. is that the real rate of interest exceeds the nominal rate of interest.e. is that time preferences in the nation have fallen.

____ 27. Inflation reached its peak (of at least 14%) in the late 1970s/early 1980s. If this statement is true, then:a. it is certain the real rate of interest was greater than the nominal rate.b. it is certain the nominal rate of interest was greater than the real rate.c. borrowers would borrow more because, automatically, real rates would fall.d. the real rate of interest must have been constant, even if the nominal rate varied because of

consumption smoothing.e. if higher nominal rates were charged, it would be certain that higher real rates would be received.

____ 28. Which combination of events could have caused the equilibrium interest rate to rise and the equilibrium quantity of loanable funds (both borrowed and lent) to fall?a. A baby boom begins, and investor confidence falls.b. A baby boom begins, and investor confidence rises.c. People have lower time preferences, and governments run larger deficits.d. People have lower time preferences, and capital is more productive.e. A baby boom begins, and people have higher time preferences.

____ 29. If household wealth rises and capital becomes less productive, we would correctly say that:a. the new equilibrium quantity of loanable funds would decrease, but we would be unable to tell if

the new equilibrium interest rate would be higher or lower than the original.b. the new equilibrium quantity of loanable funds would increase, but we would be unable to tell if the

new equilibrium interest rate would be higher or lower than the original.c. the new equilibrium quantity of loanable funds would be indeterminate, but we would be certain the

new equilibrium interest rate would be higher than the original.d. the new equilibrium quantity of loanable funds would be indeterminate, but we would be certain the

new equilibrium interest rate would be less than the original.e. based on this information and because both changes would affect the demand for loanable funds in

the opposite way, we would be unable to say anything about the relationship of the new equilibrium interest rate and quantity to the original interest rate and quantity.

____ 30. If foreign entities save less and governments run more deficits, we would correctly say that:a. the new equilibrium quantity of loanable funds would decrease, but we would be unable to tell if

the new equilibrium interest rate would be higher or lower than the original.b. the new equilibrium quantity of loanable funds would increase, but we would be unable to tell if the

new equilibrium interest rate would be higher or lower than the original.c. the new equilibrium quantity of loanable funds would be indeterminate, but we would be certain the

new equilibrium interest rate would be higher than the original.d. the new equilibrium quantity of loanable funds would be indeterminate, but we would be certain the

new equilibrium interest rate would be less than the original.e. based on this information and because both changes would affect the demand for loanable funds in

the opposite way, we would be unable to say anything about the relationship of the new equilibrium interest rate and quantity to the original interest rate and quantity.

____ 31. By 1981:a. interest rates were about 5%.b. interest rates were about 7%.c. interest rates were about 15%.d. the real interest rate was negative.e. the real interest rate was positive, but the nominal interest rate was less than the real rate.

Refer to the following graph to answer the questions that follow:

____ 32. Assuming the figure represents the market for loanable funds, which of the following would represent the government running a larger budget deficit?a. a shift from line 1 to line 4b. a shift from line 4 to line 1c. a shift from line 2 to line 3d. a shift from line 3 to line 2e. a new shortage of loanable funds represented by the distance from C to D

____ 33. Assuming the figure represents the market for loanable funds, which of the following would represent a general economic collapse in the United States, causing foreigners to become fearful about the U.S. economy?a. a shift from line 1 to line 4b. a shift from line 3 to line 2c. a shift from line 2 to line 3d. a shift from line 4 to line 1e. a new shortage of loanable funds represented by the distance from C to D

____ 34. If foreign income and wealth decrease, this would most likely:a. not affect the market for loanable funds.b. cause the supply of loanable funds to increase.c. cause the supply of loanable funds to decrease.d. cause the demand for loanable funds to increase in order for foreigners to maintain consumption.e. cause the demand for loanable funds to decrease.

____ 35. A non-price determinant of the supply of loanable funds would be:a. the interest rate.b. business future profit expectations.c. governments running higher deficits.d. a change in the level of household time preferences.e. better technology.

____ 36. Those with the least patience:a. have the greatest time preference.b. have the least time preference.c. will demand a higher nominal interest rate but not a higher real rate.d. will save the most.e. will engage in the most consumption smoothing.

____ 37. Your roommate arrives home and says, “I am so hungry, I would give up my iPhone for a bowl of chili right now.” You say, “Here is the chili—let’s trade.” Based on this information:a. you have a lower time preference than your roommate because you get the iPhone now.b. you have a lower time preference than your roommate because he gets the chili now.c. the one willing to accept a lower nominal interest rate has a higher time preference.d. your roommate would be a borrower and you a lender.e. your roommate would engage in consumption smoothing but you would not.

____ 38. T. D. Goneworth, a financial services firm, makes people want their money and want it now. If the firm is successful in advertising this message and convinces people to believe it, then, all else equal:a. T. D. Goneworth has caused people to increase their consumption smoothing.b. T. D. Goneworth has caused people to reduce their time preferences.c. T. D. Goneworth has equalized the real and nominal rates of interest.d. T. D. Goneworth has increased the rate of inflation.e. T. D. Goneworth has caused people to increase their time preferences.

____ 39. Assume an epidemic hits a nation hard. As a result, people now have lower life expectancies. The most likely result would be:a. a higher supply of loanable funds.b. a higher demand for loanable funds.c. a lower supply of loanable funds.d. higher productivity of capital.e. a decrease in equilibrium interest rates.

____ 40. If life expectancy falls due to AIDS and other diseases, we would expect:a. time preference to fall and savings to increase.b. time preference to rise and savings to increase.c. time preference to fall and savings to decrease.d. time preference to rise and savings to decrease.e. interest rates to fall to zero.

____ 41. Most people have a time preference. Since this is true:a. they must earn interest to consume now (save later) and are willing to pay interest to consume later

(save now).b. they must be paid interest to consume later (save now) and are willing to pay interest to consume

now (save later).c. they are willing to accept simple interest in the short run but only compound interest in the long

run.d. they will accept positive rates of interest on checking accounts and negative rates of interest on

savings accounts.e. they prefer more free time to less free time.

____ 42. If time preferences increase:a. the demand for loanable funds will increase.b. the demand for loanable funds will decrease.c. the supply of loanable funds will increase.d. the supply of loanable funds will decrease.e. wealth will increase.

____ 43. When people withdraw funds from their savings, economists call this:a. irrational.b. dissaving.c. disspending.d. consumption smoothing.e. the wealth effect.

____ 44. The notion of consumption smoothing means:a. people tend to spend about the same amount each month.b. people tend to spend about the same amount each year, and if more is spent this year than in the

past, they would tend to spend less next year.c. consumption varies less than income over a person’s lifetime. In early life people tend to borrow, in

late life people tend to dissave, but in their middle years they tend to save.d. consumption patterns tend to correlate perfectly with income. People spend the exact amount of

their income over their lifetime.e. consumption tends to vary more than income over a person’s lifetime. Although people should

smooth their consumption over the years, they don’t. If consumption were smoothed, people would be better off.

____ 45. If the demographics of a nation change and the average age of the nation is approaching middle age, we would expect:

a. savings to increase.b. savings to decrease.c. borrowing to decline.d. consumption variation to increase.e. savings as a percentage of income to fall.

____ 46. An increase in the supply of loanable funds means:a. borrowers want to borrow more at every interest rate.b. savers want to borrow more at every interest rate.c. borrowers want to borrow more at a specific interest rate.d. savers want to save more at a specific interest rate.e. savers want to save more at every interest rate.

____ 47. If the U.S. economy experiences a major recession, then:a. the demand for loanable funds will shift right.b. the supply of loanable funds will shift right.c. the demand for loanable funds will shift left.d. the supply of loanable funds will shift left.e. both the supply and demand for loanable funds will increase.

____ 48. The measurement of personal savings may be distorted by:a. increased college tuition costs.b. reduced college tuition costs.c. higher marginal tax rates.d. greater levels of home equity.e. lower levels of home equity.

____ 49. One could correctly argue that higher capital productivity:a. would increase the value of capital and the supply of loanable funds.b. would reduce the value of capital and the supply of loanable funds.c. would only affect interest rates in the long run.d. would increase the value of capital and the demand for loanable funds.e. would reduce the value of capital and the demand for loanable funds.

____ 50. Firms expect more sales and profits in the near future; this would cause:a. the demand for loanable funds to increase.b. the supply of loanable funds to increase.c. both the demand and supply of loanable funds to increase.d. both the demand and supply of loanable funds to decrease.e. lower interest rates in the near future.

____ 51. If everyone began feeling better about the economic future:a. “animal spirits” would become negative.b. “animal spirits” would become more positive and firms would invest more, causing the demand for

loanable funds to increase.c. “animal spirits” would become more positive and firms would invest more, causing the supply of

loanable funds to increase.d. “animal spirits” would become more positive and firms would invest more, causing the supply of

loanable funds to decrease.e. “animal spirits” would become more positive and firms would invest more, causing the demand for

loanable funds to decrease.____ 52. The demand for loanable funds increases while the supply of loanable funds remains constant. This would cause:

a. the equilibrium quantity of loanable funds to decrease and the equilibrium interest rate to increase.b. the equilibrium quantity of loanable funds to increase and the equilibrium interest rate to decrease.c. both the equilibrium quantity of loanable funds and the equilibrium interest rate to increase.d. the equilibrium interest rate to decrease, but the equilibrium quantity of loanable funds would

remain unchanged.e. the equilibrium interest rate to increase, but the equilibrium quantity of loanable funds would

remain unchanged.

____ 53. The supply of loanable funds increases while the demand for loanable funds remains constant. This would cause:a. the equilibrium quantity of loanable funds to decrease and the equilibrium interest rate to increase.b. the equilibrium quantity of loanable funds to increase and the equilibrium interest rate to decrease.c. both the equilibrium quantity of loanable funds and the equilibrium interest rate to increase.d. the equilibrium interest rate to increase, leading to a new lower equilibrium quantity.e. the equilibrium interest rate to increase, but the equilibrium quantity of loanable funds would

remain unchanged.____ 54. The demand and supply of loanable funds increase simultaneously. This would cause:

a. the equilibrium quantity of loanable funds to decrease and the equilibrium interest rate to increase.b. the equilibrium quantity of loanable funds to increase and the equilibrium interest rate to decrease.c. the equilibrium quantity of loanable funds to increase, but the effect on the equilibrium interest rate

would be uncertain.d. the equilibrium interest rate to increase, but the new equilibrium quantity would be uncertain.e. the equilibrium interest rate to decrease, but the new equilibrium quantity would be uncertain.

____ 55. The demand and supply of loanable funds decrease simultaneously. This would cause:a. the equilibrium quantity of loanable funds to decrease and the equilibrium interest rate to increase.b. the equilibrium quantity of loanable funds to decrease, but the effect on the equilibrium interest rate

would be uncertain.c. the equilibrium quantity of loanable funds to increase, but the effect on the equilibrium interest rate

would be uncertain.d. the equilibrium interest rate to increase, but the new equilibrium quantity would be uncertain.e. the equilibrium interest rate to decrease, but the new equilibrium quantity would be uncertain.

____ 56. The demand for loanable funds decreases while the supply simultaneously increases. This would cause:a. the equilibrium quantity of loanable funds to decrease and the equilibrium interest rate to increase.b. the equilibrium quantity of loanable funds to increase and the equilibrium interest rate to decrease.c. the equilibrium quantity of loanable funds to increase, but the effect on the equilibrium interest rate

would be uncertain.d. the equilibrium interest rate to increase, but the new equilibrium quantity would be uncertain.e. the equilibrium interest rate to decrease, but the new equilibrium quantity would be uncertain.

____ 57. The demand for loanable funds increases by the exact same percentage that the supply of loanable funds decreases. This would cause:

a. the equilibrium quantity of loanable funds to decrease and the equilibrium interest rate to increase.b. the equilibrium quantity of loanable funds to increase and the equilibrium interest rate to decrease.c. the equilibrium quantity of loanable funds to increase, but the effect on the equilibrium interest rate

would be uncertain.d. the equilibrium interest rate to increase, resulting in a new higher equilibrium quantity.e. the equilibrium interest rate to increase, but the equilibrium quantity would remain unchanged.

____ 58. Equilibrium in the loanable funds market means:a. the interest rate at which savings equals consumption.b. the interest rate at which investment equals consumption.c. the interest rate at which investment equals savings.d. the dollar price at which investment equals savings.e. the dollar price at which savings equals consumption.

____ 59. Businesses became more pessimistic during the Great Recession of 2007–2009. As a result:a. foreigners were less willing to lend to the United States.b. foreigners were more willing to lend to the United States.c. investment demand fell.d. investment demand increased.e. governments in the United States ran more surpluses.

____ 60. It is likely that as more baby boomers reach retirement:a. more babies will be born to replace them.b. the demand for loanable funds will shift right.

c. the demand for loanable funds will shift left.d. the supply of loanable funds will shift right.e. the supply of loanable funds will shift left.

____ 61. Assume that two people save $100 per month (the same for both) and earn exactly the same positive annual interest rate of 2%. Also assume that one of them started saving at 20 years old, while the other stared saving at 40 years old. Which statement is correct?a. On their 60th birthday, the one who started saving later would have exactly half as much as the one

who began saving earlier.b. On their 60th birthday, they would both have the same amount.c. On their 60th birthday, the one who started saving later would have less than half the amount that

the one who began saving earlier has.d. On their 60th birthday, the one who started saving later would have received a larger real interest

rate, but not enough to “catch up” to the one who began saving earlier.e. On their 60th birthday, neither would have anything if inflation had been negative during the

period.____ 62. The term ___________ is a popular way to describe the recession-expansion pattern followed by the economy.

a. business cycleb. output cyclec. inflation cycled. unemployment cyclee. long-run cycle

____ 63. Business-cycle theory focuses on time horizons of less than:a. five years.b. ten years.c. two years.d. one year.e. one month.

____ 64. The model used to study business cycles is the:a. labor model.b. savings model.c. growth model.d. aggregate demand–aggregate supply model.e. interest rate model.

____ 65. Aggregate demand is determined by adding up the spending of:a. domestic consumers who buy goods and services produced in the United States.b. domestic consumers and firms that buy goods and services produced in the United States.c. domestic and foreign consumers who buy goods and services produced in the United States.d. domestic and foreign consumers and firms that buy goods and services produced in the United

States.e. consumers, firms, the government, and foreigners that buy goods and services produced in the

United States.____ 66. The aggregate demand curve is best represented by which of the following equations?

a. AD = C + I + G + NXb. AD = C + I + G – NXc. AD = C + I + Gd. AD = C + Ie. AD = C + I – G – NX

____ 67. Which of the following would cause a downward movement along the aggregate demand curve?a. A rise in the price level makes U.S. goods relatively more expensive than foreign goods.b. The value of real wealth rises.c. There is a decline in the expected price level.d. A fall in the price level increases savings and lowers interest rates.e. The value of the dollar decreases.

____ 68. An increase in the price level that reduces the real value of wealth is likely to __________ consumption and __________ saving.a. increase; increaseb. decrease; decreasec. decrease; increased. increase; decreasee. have no effect on; have no effect on

____ 69. When a change in the price level leads to a change in saving, this is known as the:a. wealth effect.b. international trade effect.c. savings effect.d. interest rate effect.e. output effect.

____ 70. The interest rate effect results from people:a. saving less when the price level rises.b. consuming more when the price level rises.c. spending more when the interest rate rises.d. feeling more wealthy when the price level rises.e. spending more when the price level falls.

____ 71. Suppose that an increase in the price level reduces the value of real wealth, which then causes a reduction in consumption but no change in saving. In this case:a. there is both an interest rate effect and a wealth effect.b. there is no wealth effect.c. there is an interest rate effect but no wealth effect.d. there is a wealth effect but no interest rate effect.e. there is no wealth effect and no interest rate effect.

____ 72. When saving declines, the quantity of investment will __________, and therefore aggregate demand will __________.a. increase; increaseb. decrease; decreasec. decrease; increased. increase; decreasee. remain unchanged; decrease

____ 73. When the price level rises and U.S. goods become relatively more expensive than foreign goods, there will be:a. a rightward shift of the aggregate demand curve.b. a leftward shift of the aggregate demand curve.c. an upward movement along the aggregate demand curve.d. a downward movement along the aggregate demand curve.e. a downward movement along the aggregate supply curve.

____ 74. Shifts in the aggregate demand curve are caused by:a. the wealth effect.b. the interest rate effect.c. money illusion.d. changes in labor productivity.e. changes in spending.

____ 75. You read in the paper that there has been a significant increase in the consumer confidence index. Having taken an economics class, you predict that spending in the economy will __________ and aggregate demand will __________.a. decrease; increaseb. decrease; decreasec. increase; be unaffectedd. increase; decreasee. increase; increase

____ 76. If people expect higher income in the future, then spending today __________ and aggregate demand __________.a. increases; is unaffectedb. increases; increases

c. increases; decreasesd. decreases; decreasese. is unaffected; is unaffected

____ 77. An increase in the value of the dollar will __________ exports and __________ imports.a. increase; increaseb. decrease; decreasec. have no effect on; have no effect ond. decrease; increasee. increase; decrease

____ 78. When foreign income rises, U.S. aggregate:a. demand will shift to the right.b. supply will shift to the right.c. demand will shift to the left.d. supply will shift to the left.e. demand and aggregate supply will be unaffected.

____ 79. An increase in the value of the dollar will:a. have no effect on aggregate demand or supply.b. decrease aggregate supply.c. increase aggregate supply.d. increase aggregate demand.e. decrease aggregate demand.

____ 80. __________ would cause a rightward shift of the aggregate demand curve.a. A decrease in the expected price levelb. A decrease in foreign incomec. An increase in expected incomed. A decrease in real wealthe. An increase in the value of the dollar

____ 81. If large emerging economies continue to grow rapidly, we can expect U.S. aggregate:a. demand to increase.b. demand to decrease.c. supply to increase.d. supply to decrease.e. demand and supply to be unaffected.

____ 82. Which of the following would shift aggregate demand to the right?a. College graduates are having a difficult time finding jobs.b. There is a decline in consumer confidence.c. Stock market values increase by 20%.d. A fall in the price level increases the value of real wealth.e. The value of the dollar increases.

____ 83. Which of the following would shift aggregate demand to the left?a. A study predicts that the recent drought will increase food prices this winter.b. There is a rise in the median price of houses.c. A rise in the price level reduces saving and increases interest rates.d. The value of the dollar increases.e. The European Union emerges from recession.

____ 84. Aggregate demand is about _________ and aggregate supply is about _________.a. income; spendingb. spending; productionc. production; spendingd. production; incomee. saving; profit

____ 85. Aggregate supply describes a relationship between:a. spending and income.

b. output and prices.c. costs and revenue.d. spending and output.e. spending and prices.

____ 86. When decision makers have time to fully adjust to changes in the overall price level, we refer to this as:a. the short run.b. the long run.c. short-run equilibrium.d. a period of time longer than one year.e. equilibrium.

____ 87. When prices in the economy have not fully adjusted, we say that:a. we are in the short run.b. we are in the long run.c. it is a period of time less than one year.d. it is a period of time less than five years.e. the market is not in equilibrium.

____ 88. Which of the following is true?a. Long-run aggregate supply is independent of the price level.b. Short-run aggregate supply is independent of the price level.c. Long-run aggregate supply is positively related to the price level.d. Short-run aggregate supply is inversely related to the price level.e. Long-run aggregate supply is inversely related to the price level.

____ 89. A rightward shift of the long-run aggregate supply curve means there has been:a. a decrease in the unemployment rate.b. an increase in the unemployment rate.c. an increase in the price level.d. a decrease in the price level.e. economic growth.

____ 90. New computer technologies can be expected to:a. increase long-run aggregate supply.b. increase the price level.c. increase the unemployment rate.d. decrease aggregate demand.e. decrease aggregate supply.

____ 91. Which of the following would cause an increase in long-run aggregate supply?a. The price level increases.b. The price level decreases.c. Firms and workers expect the price level to fall.d. Firms and workers expect the price level to rise.e. The stock of capital increases.

____ 92. If the price level rises by 10%, then all else being equal, the long-run quantity of aggregate supply will:a. increase by 10%.b. decrease by 10%.c. remain unchanged.d. increase by more than 10%.e. increase by less than 10%.

____ 93. If the price level falls by 5%, then all else being equal, the long-run aggregate supply curve will:a. remain unchanged.b. shift to the right to reflect an increase in output of 5%.c. shift to the right to reflect an increase in output of more than 5%.d. shift to the left to reflect a decrease in output of 5%.e. shift to the left to reflect a decrease in output of more than 5%.

____ 94. All else being equal, as the population ages and many people leave the labor force:a. the unemployment rate will rise.

b. the price level will fall.c. long-run aggregate supply will fall.d. long-run aggregate supply will be unaffected.e. aggregate demand must rise.

____ 95. When an economy has a more stable and well-developed financial system, it is reasonable to expect:a. an upward movement along the long-run aggregate supply curve.b. a downward movement along the long-run aggregate supply curve.c. a leftward shift of the long-run aggregate supply curve.d. a rightward shift of the long-run aggregate supply curve.e. no change in the long-run aggregate supply curve.

____ 96. An economy has experienced a rightward shift of its long-run aggregate supply curve and is now producing on that new long-run aggregate supply curve. It is reasonable to expect that:a. the unemployment rate has fallen.b. the unemployment rate has been unaffected.c. the inflation rate has risen.d. the price level has risen.e. productivity has fallen.

____ 97. When inflation pushes up prices in the economy, input prices are _________ and revenues _________ in the short run.a. flexible; remain unchangedb. sticky; increasec. sticky; remain unchangedd. flexible; decreasee. flexible; increase

____ 98. The slope of the short-run aggregate supply curve can be explained by:a. the fact that all prices are sticky in the short run.b. sticky input prices and flexible output prices.c. flexible input prices and sticky output prices.d. the fact that all prices are flexible in the short run.e. the fact that all prices except wages are flexible in the short run.

____ 99. Menu costs help to explain:a. the negative slope of the aggregate demand curve.b. the negative slope of the aggregate supply curve.c. the positive slope of the short-run aggregate supply curve.d. why the long-run aggregate supply curve is vertical.e. why the long-run aggregate supply curve is horizontal.

____ 100. If the price level falls but workers are reluctant to accept a pay cut, this is an example of:a. menu cost.b. money illusion.c. a legally binding contract.d. a supply shock.e. an implicit contract.

____ 101. If workers actively demand pay increases when the price level is rising and are willing to accept pay cuts when the price level is falling, then the short-run aggregate supply curve would be:a. negatively sloped.b. nearly vertical.c. nearly horizontal.d. positively sloped as usual.e. always shifting to the right or the left.

____ 102. Suppose an economy has a law that requires all wages to be adjusted quarterly to reflect changes in the general price level. This means wages either increase or decrease depending on the percent change in the general price level. In this economy:a. there are recessions but no expansions.b. output is always at the full employment level.c. business cycles are less severe.

d. the price level will remain fixed.e. workers are worse off in real terms than if wages were not indexed.

____ 103. An increase in the general price level will lead to:a. an upward movement along the short-run aggregate supply curve as firms increase output.b. a rightward shift of the short-run aggregate supply curve as firms increase output.c. a downward movement along the short-run aggregate supply curve as firms decrease output.d. a leftward shift of the short-run aggregate supply curve as firms decrease output.e. no change in output because input prices are sticky.

____ 104. If inflation turns out to be higher than expected, this will:a. shift long-run aggregate supply to the right.b. shift long-run aggregate supply to the left.c. shift short-run aggregate supply to the left.d. shift short-run aggregate supply to the right.e. have no effect on aggregate supply.

____ 105. An increase in short-run aggregate supply could be the result of:a. an increase in the general price level.b. a negative supply shock.c. an increase in the price of oil.d. an increase in consumption spending.e. a reduction in expected future prices.Refer to the following figure to answer the questions that follow.

____ 106. Based on the figure, if the economy is currently at point B, then in the long run, we can expect we will move to:a. point C.b. point A.c. point D.d. point C and then point D.e. point A and then point C.

____ 107. Based on the figure, an increase in _________ could cause the economy to move from point A to point D.a. government spendingb. taxesc. the price of oild. importse. labor productivity

____ 108. Based on the figure, a decrease in _________ could cause the economy to move from point A to point B.a. investmentb. consumer confidencec. labor productivity

d. the price of oile. taxes

____ 109. Suppose a prolonged war in a country destroys 30% of the capital stock. In the long run, the price level will _________ as _________.a. increase; short-run aggregate supply decreasesb. decrease; both long-run and short-run aggregate supply decreasec. decrease; long-run aggregate supply decreasesd. remain unchanged; long-run aggregate supply decreasese. increase; both long-run and short-run aggregate supply decrease

____ 110. Suppose new drilling techniques increase the world oil supply. In the long run, output will _________ and the price level will _________.a. remain unchanged; decreaseb. remain unchanged; remain unchangedc. increase; decreased. increase; remain unchangede. increase; increase

____ 111. Suppose a country’s population is aging and the size of the workforce is declining. In the long run, output will _________ and the price level will _________.a. decrease; increaseb. remain unchanged; decreasec. decrease; decreased. decrease; remain unchangede. increase; decrease

____ 112. An increase in long-run aggregate supply can be expected to _________ the price level and _________ the natural rate of unemployment.a. have no effect on; have no effect onb. have no effect on; increasec. decrease; decreased. decrease; have no effect one. increase; have no effect on

____ 113. Perfect summer weather increases farm output by 30%. In the short run, this can be expected to __________ the price level and __________ real wealth.a. increase; increaseb. increase; decreasec. decrease; increased. decrease; decreasee. have no effect on; have no effect on

____ 114. A severe drought hits a country and reduces farm output by 50%. This will impact:a. short-run aggregate supply.b. short-run and long-run aggregate supply.c. long-run aggregate supply.d. aggregate demand.e. short-run aggregate supply and aggregate demand.

____ 115. If the current short-run equilibrium level of output is less than full employment output, we can then expect that in the long run:a. the price level will fall.b. the price level will rise.c. aggregate demand will decrease.d. aggregate demand will increase.e. long-run aggregate supply will decrease.

Refer to the following figure to answer the questions that follow.

____ 116. Based on the figure, a negative supply shock is best represented by a movement from:a. C to B.b. D to A.c. A to D.d. C to D.e. A to B.

____ 117. Based on the figure, which of the following would cause the short-run aggregate supply curve to shift from SRAS 1 to SRAS2?a. Congress votes to increase the minimum wage.b. There is an increase in spending and firms respond by producing more output.c. Wages and input prices fall as the economy recovers from a recession.d. A severe drought reduces farm production.e. A temporary rise in the price of oil results in higher gasoline prices.

____ 118. An increase in aggregate demand is beneficial in the short run because __________, but harmful in the long run because __________.a. output decreases; the unemployment rate fallsb. the unemployment rate falls; the price level risesc. wages decrease; wages increased. real wealth decreases; real wealth increasese. wages increase; the unemployment rate rises

____ 119. A decrease in aggregate demand is harmful in the short run because __________, but beneficial in the long run because __________.a. real wealth rises; real wealth fallsb. wages increase; wages decreasec. the price level rises; output fallsd. unemployment rises; the price level fallse. the price level falls; the unemployment rate rises

____ 120. Suppose firms increase investment spending to replace worn-out equipment. In the short run, aggregate demand will __________ and output will __________.a. increase; increaseb. increase; decreasec. decrease; decreased. remain unchanged; remain unchangede. decrease; increase

____ 121. Suppose there is a surge in stock market values. In the short run, we would expect the price level to __________ and the unemployment rate to __________.a. increase; decreaseb. increase; increasec. decrease; increased. decrease; decreasee. remain unchanged; decrease

____ 122. Suppose people are worried about losing their jobs. In the short run, this will:a. decrease short-run aggregate supply and output.b. decrease aggregate demand and output.c. decrease aggregate demand and short-run aggregate supply.d. decrease output and increase the price level.e. increase saving and increase aggregate demand.

____ 123. If the economy is in a recession caused by lower aggregate demand, then in the absence of policy action, the price level will __________, output will __________, and employment will __________ in the long run.a. increase; remain unchanged; increaseb. remain unchanged; increase; increasec. decrease; increase; increased. decrease; decrease; increasee. increase; increase; increase

____ 124. Which of the following would cause an increase in the price level in the long run?a. The number of workers in the labor force increases.b. Net exports decrease.c. Investment increases.d. Natural resources increase.e. There is a temporary increase in the price of oil.Refer to the following figure to answer the questions that follow.

____ 125. Based on the figure, starting at point A, if there is an increase in government spending, then in the short run we would move to point __________ and in the long run to point __________.a. B; Eb. B; Cc. D; Ad. D; Ce. B; A

____ 126. Based on the figure, if the economy is currently at point B, then in the long run, we can expect the economy to be at point __________.a. Ab. Cc. Dd. Ee. B

____ 127. Based on the figure, if the economy starts at point A and ends up at point E, then in the short run, there was:a. a decrease in aggregate demand.b. an increase in aggregate demand.c. a decrease in short-run aggregate supply.d. an increase in short-run aggregate supply.

e. an increase in long-run aggregate supply.____ 128. A budget is:

a. a record of income and purchases from the previous year.b. a plan for spending and earning money.c. only necessary for individuals with low incomes.d. only necessary for countries suffering from financial crises.e. required to be balanced by Congress.

____ 129. Between 2000 and 2010, real government outlays in the United States grew:a. by less than 50%.b. by more than 50%.c. by more than 75%.d. by more than 100%.e. by less than 30%.

____ 130. The largest portion of the federal budget is dedicated to:a. discretionary spending.b. mandatory outlays.c. interest payments.d. tax collection.e. defense spending.

____ 131. Which of the following is considered mandatory government spending?a. funding for the Environmental Protection Agencyb. payments to active military personnelc. infrastructure maintenance spendingd. international aid to poor countriese. payments to Social Security recipients

____ 132. Transfer payments refer to funds that are transferred from one group in society to another group:a. so these payments have no impact on the government budget deficit.b. so these payments have no impact on the government debt.c. so these payments are unfair to those who lose money in the transfer.d. and these payments represent a growing share of U.S. federal outlays.e. and these payments remain approximately constant over time.

____ 133. Mandatory outlays are different than discretionary outlays because:a. mandatory outlays usually change during the budget process, whereas discretionary outlays do not.b. mandatory outlays have been decreasing as a percentage of the federal budget, whereas

discretionary outlays have been increasing as a percentage of the federal budget.c. discretionary outlays can be changed during the annual budget process, whereas mandatory outlays

cannot.d. discretionary outlays include entitlement programs (such as Social Security and Medicare), whereas

mandatory outlays include important government programs (such as defense).e. discretionary outlays comprise the vast majority of the total budget, whereas mandatory outlays

make up only a minor fraction.

____ 134. Why are interest payments considered mandatory spending in the federal budget?a. They are considered mandatory spending because such payments are fixed at the time of borrowing

and cannot be altered.b. They are considered mandatory spending because the interest rates on federal debt are extremely

high, and failing to pay accumulated interest would dramatically increase the total debt.c. They are considered mandatory spending because not making such payments could endanger the

government’s credit rating, which could make it harder to borrow going forward.d. They are considered mandatory spending because interest payments constitute the largest part of

yearly government spending.e. They are considered mandatory spending because most interest payments go to American

households and those citizens depend on the interest payments for their livelihoods.____ 135. Mandatory outlays:

a. usually change during the budget process.b. cannot be altered once they are made into law.c. require changes in existing laws if those outlays are to be altered.d. are a minor component of total outlays, and so are usually ignored.e. are another name for discretionary outlays.

____ 136. Which of the following is considered discretionary government spending?a. payments to Social Security recipientsb. payments to unemployment insurance recipientsc. payments to government employeesd. payments to food stamp recipientse. payments to foreign bondholders

____ 137. _____________ would be considered a mandatory outlay in your monthly budget.a. A student loan paymentb. A donation to your alma materc. A grocery billd. Your electric bille. Gasoline money (for travel to and from work)

____ 138. Due to ____________, government outlays have risen quickly since 2000.a. less tax revenueb. an aging populationc. increased government borrowingd. economic expansione. lower interest payments on current government debt

____ 139. ____________ a government-administered retirement program.a. Medicare isb. Medicaid isc. Unemployment compensation isd. Social Security ise. Food stamps are

____ 140. When Social Security was first instituted by President Franklin Roosevelt in 1935, the payroll tax rate on wages used to fund the program was:a. 1%.b. 2%.c. 3%.d. 4%.e. 5%.

____ 141. Why do Social Security and Medicare pose problems for the federal government budget?a. The number of retirees is increasing.b. The worker-to-retiree ratio is increasing.c. Life expectancy is decreasing.d. The number of sick people is rising too quickly.e. Social insurance taxes cannot legally be raised any further.

____ 142. One proposed solution to the funding problems faced by Social Security and Medicare is to increase the retirement age from 67 to 70. Although this would mean billions of dollars in savings for these federal programs, an unintended consequence may be:a. a decrease in life expectancy.b. an increase in the unemployment rate.c. an increased number of elderly people in the workforce.d. less incentive for people to work longer.e. an increased incentive for people to work longer.

____ 143. Reforming entitlement programs is difficult because:a. there is very little support for reform.b. there are no good ideas for effective reform.c. reforms require changes to existing law, which takes time.

d. all the reforms proposed are only short-term solutions.e. the proposed reforms all require increases in existing tax rates, which are difficult to achieve

politically.____ 144. Which of the following is not a revenue source for the U.S. federal government?

a. sales taxesb. federal gasoline taxesc. federal income taxesd. payroll taxese. admission fees for national parks

____ 145. In 2012, revenue from corporate income taxes totaled approximately:a. 5% of total revenue.b. 10% of total revenue.c. 15% of total revenue.d. 20% of total revenue.e. 25% of total revenue.

____ 146. Excise taxes are levied on:a. property that is gifted to others.b. imports.c. individual income.d. corporate income.e. specific goods or commodities.

____ 147. Social Security and Medicare are funded by the collection of:a. individual income taxes.b. corporate income taxes.c. payroll taxes.d. excise taxes.e. sales taxes.

____ 148. The largest source of tax revenue for the government is:a. individual income taxes.b. corporate income taxes.c. social insurance taxes.d. estate taxes.e. excise taxes.

____ 149. Some people argue that social insurance taxes should be increased to remedy the fiscal problems faced by Social Security. What is a potential unintended consequence of this proposed solution?a. Federal tax revenues may increase.b. The tax burden of the average worker may increase.c. The disposable income of workers may decrease.d. The elderly poverty rate may decrease.e. The unemployment rate may increase.

____ 150. The United States has a:a. progressive income tax system.b. regressive income tax system.c. marginal income tax system.d. good income tax system.e. bad income tax system.

____ 151. Typically, the average tax rate for a person is ____________ their marginal tax rate, because ____________.a. below; the marginal tax rate applies to all incomeb. below; the marginal tax rate applies to the first dollars taxed, but not to all incomec. below; the marginal tax rate applies to the last dollars taxed, but not to all incomed. above; the marginal tax rate applies to the last dollars taxed, but not to all incomee. above; the marginal tax rate applies to the first dollars taxed, but not to all income

____ 152. According to the U.S. Federal Tax Rates chart from the textbook (Figure 15.6), a person earning $100,000 in a given year is in the 28% tax bracket. How much will this individual owe in taxes for that year?

a. $0b. $28,000c. more than $28,000d. less than $28,000 but greater than $15,000e. greater than $0 but less than $15,000Refer to the following table to answer the questions that follow.

____ 153. Using the table, what is the marginal income tax rate for someone who makes $67,000 per year?a. 10.0%b. 14.2%c. 16.7%d. 25.0%e. 19.1%

____ 154. Using the table, what is the total payroll tax bill (assume zero state and local income taxes) for someone who makes $67,000 per year?a. $17,905.25b. $23,030.75c. $13,751.25d. $16,933.75e. $5,125.50

____ 155. The U.S. federal income tax began in:a. 1910.b. 1911.c. 1912.d. 1913.e. 1914.

____ 156. By 1918, the top marginal income tax rate in the United States rose to:a. 77%.b. 76%.c. 75%.d. 74%.e. 73%.

____ 157. The highest marginal tax rate in U.S. history was:a. 100%.b. 98%.c. 96%.d. 94%.e. 92%.

____ 158. The top 1% of households in the United States:a. contribute no federal income tax revenues become of tax loopholes.

b. contribute nearly 40% of all federal income tax revenues.c. contribute more than 50% but less than 75% of all federal income tax revenues.d. contribute more than 75% but less than 90% of all federal income tax revenues.e. contribute more than 90% of all federal income tax revenues.

____ 159. Why do wealthy citizens contribute much more tax revenues to the government than poor citizens?a. Wealthy citizens consume more government services, so they are taxed at a higher rate.b. Wealthy citizens have a much lower average tax rate than poor citizens.c. Wealthy citizens work more hours per week than poor citizens.d. Wealthy citizens have much more taxable income than poor citizens.e. Wealthy citizens do not contribute more tax revenues to the government than poor citizens.

____ 160. The wealthiest 20% of households in the United States:a. do not contribute their fair share of federal income taxes.b. contribute the vast majority of all federal income taxes.c. are forced to pay too much in federal income taxes.d. pay zero federal income taxes because of tax loopholes.e. contribute less than 50% of all federal income taxes because of tax loopholes.

____ 161. The poorest 40% of households in the United States:a. do not contribute their fair share of income taxes.b. contribute the vast majority of all income taxes.c. are forced to pay too much income tax despite their low incomes.d. pay negative income taxes because of tax credits and income assistance.e. contribute an amount of income taxes proportionate to what they consume in government services.

____ 162. The middle 20% of households in the United States:a. contribute more than 70% of all federal income tax revenues.b. contribute less than 70% but more than 50% of all federal income tax revenues.c. contribute less than 10% of all federal income tax revenues.d. contribute no federal income tax revenues.e. pay negative federal income taxes because of tax credits and income assistance.

____ 163. A U.S. federal government budget deficit occurs when:a. government revenue exceeds outlays.b. government outlays exceed revenue.c. government outlays equal revenue.d. the United States borrows money from foreign countries.e. the United States lends money to foreign countries.

____ 164. The most recent federal budget surplus occurred:a. never; the government has always run a budget deficit.b. in 1959.c. in 2012.d. in 2006.e. in 2001.

____ 165. During the Great Recession, government outlays were _________ and government revenues were _________ their long-run averages over the period 1960–2012.a. above; belowb. below; abovec. above; aboved. below; belowe. equal to; equal to

____ 166. Why is a budget deficit not necessarily a bad thing?a. Governments should always spend more than they collect in revenue to encourage economic

growth.b. Saving money is not something a government should do.c. As long as the government is paying for things it needs, it is appropriate to spend more than is

collected in tax revenue.d. Deficits may allow for tax rate stability during recessions.

e. Because future generations will be better equipped to pay back any accumulated deficits.____ 167. Budget deficits tend to:

a. increase during expansions.b. increase during wars.c. decrease during recessions.d. increase over time.e. decrease over time.

____ 168. Which of the following might be a good reason for running a budget deficit?a. A budget deficit allows for consumption to be more evenly distributed over time, which can be

helpful during times of recession.b. It puts the repayment burden on future taxpayers, who are better able to repay the accumulated

debt.c. It is better than increasing taxes, because budget deficits do not have to be repaid.d. It allows for the expansion of entitlement programs to cover more people, thus reducing their

financial burdens.e. There is never a good reason for running a budget deficit.

____ 169. If government revenues in 2011 were $2.2 trillion and government outlays were $3.8 trillion:a. the federal debt was unaffected.b. the federal debt decreased $1.6 trillion.c. the federal budget surplus was $1.6 trillion.d. the federal budget deficit was $1.6 trillion.e. the federal budget was balanced.

____ 170. If government revenues in 2000 were $2.0 trillion and government outlays were $1.8 trillion, this means that:a. the federal debt was unaffected in that year.b. the federal debt increased $200 billion.c. the federal budget deficit was $200 billion.d. the federal budget surplus was $200 billion.e. the federal budget was balanced.

____ 171. Should we be concerned about a growing federal debt?a. No, because budget deficits are more important to worry about than the federal debt.b. No, because federal debt, unlike private debt, does not have to be repaid.c. Yes, because a large federal debt may slow the rate of economic growth in the future.d. Yes, because if the debt grows too large, we will have to receive bailouts from other countries,

which means they will be able to control our policy and economy.e. Yes, because it is likely that the government will confiscate the savings of individuals to pay for the

debt.____ 172. Why does the federal debt tend to increase during periods of recession?

a. Economic activity decreases, which decreases revenues and increases outlays.b. Economic activity decreases, which decreases revenues and decreases outlays.c. Economic activity increases, which increases revenues and increases outlays.d. Economic activity increases, which increases revenues and decreases outlays.e. Economic activity increases, which decreases revenues and increases outlays.Use the following table to answer the questions that follow.

____ 173. According to the table, the country with the highest average yearly budget deficit over the time period is:a. the United States.b. France.c. Italy.d. Belgium.e. Australia.

____ 174. According to the table, the country with the lowest average yearly budget deficit over the time period is:a. the United States.b. France.c. Italy.d. Belgium.e. Australia.

____ 175. According to the table, the country with the highest average yearly budget deficit over the time period as a percentage of the yearly increase in GDP is:a. the United States.b. France.c. Italy.d. Belgium.e. Australia.

____ 176. According to the table, the country with the largest increase in the debt-to-GDP ratio over the time period is:a. the United States.b. France.c. Italy.d. Belgium.e. Australia.

____ 177. According to the table, which country appeared to be in the worst fiscal shape in 2012?a. United Statesb. Francec. Italyd. Belgiume. Australia

____ 178. According to the table, which country appeared to be in the best fiscal shape in 2012?a. United Statesb. Francec. Italyd. Belgiume. Australia

____ 179. What would happen if a country defaulted on its sovereign debt?

a. It could lead to a deep recession—the effects of which might spill over into other countries.b. It is impossible for a country to default on its debt.c. Nothing, because other countries would step in to rescue the country.d. The country and all its property would be sold in the international marketplace to the highest bidder

in an effort to repay creditors.e. All the assets of the country’s citizens would be confiscated and sold to repay creditors.

____ 180. Why was the world so concerned about Greece defaulting on its debt?a. People were afraid Greece would be sold to another country to pay its debts.b. The U.S. government held a large quantity of Greek debt, so there was a concern that a Greek

default would cause a U.S. default.c. Countries in the European Union held a large quantity of Greek debt, so there was a concern that a

Greek default would cause other European countries to default.d. There were concerns that Greece would devalue its currency, leading to a severe recession.e. Greece is one of the largest consumers in the world, so there were fears that a Greek default would

lead to a collapse in world demand.____ 181. Why is foreign government ownership of U.S. debt not currently a huge concern among many economists?

a. It could lead to eventual foreign control of our economy and policies, which would encourage economic growth in the future.

b. The United States has a proven track record of negotiating debt-forgiveness deals, so it is unlikely that the debt will have to be paid back.

c. Foreign ownership of U.S. debt drives interest rates up, which is good for savers in the United States.

d. The amount of debt held by foreigners is substantially less than the money the United States owes itself.

e. Foreign countries would bail out the United States if its debt ever became too large to manage.____ 182. In recent years, the growth in foreign-owned debt has:

a. substantially weakened the U.S. economy.b. helped the U.S. economy by keeping the supply of loanable funds higher than it would be

otherwise.c. harmed the U.S. economy by driving up the cost of borrowing.d. harmed the U.S. economy by sending jobs overseas.e. not affected the U.S. economy.

____ 183. Which country holds the most U.S. debt?a. Chinab. United Kingdomc. Japand. Germanye. United States

____ 184. Fiscal policy is:a. the use of the money supply to influence the economy.b. actions taken by the Federal Reserve to influence the economy.c. only used during times of recession.d. only used during times of expansion.e. the use of government spending and taxes to influence the economy.

____ 185. When the government increases spending or decreases taxes to stimulate the economy toward expansion, the government is conducting:a. expansionary monetary policy.b. expansionary fiscal policy.c. contractionary monetary policyd. contractionary fiscal policy.e. neither monetary policy nor fiscal policy.

____ 186. Fiscal policy includes:a. only increases and decreases to taxes.b. only increases and decreases to government spending.

c. increases and decreases to both taxes and government spending.d. only decreases in taxes and increases in government spending.e. only increases in taxes and decreases in government spending.

____ 187. Congress and the president would conduct expansionary fiscal policy in order to:a. try to control inflation.b. prevent the economy from expanding past its long-run capabilities.c. control the money supply.d. raise tax revenues.e. try to stimulate the economy toward expansion.

____ 188. The goal of expansionary fiscal policy is to shift the _________ curve to the _________.a. aggregate demand; leftb. aggregate demand; rightc. short-run aggregate supply; rightd. short-run aggregate supply; lefte. long-run aggregate supply; left

____ 189. During which of the following situations would you advise for expansionary fiscal policy?a. when current output is above full-employment outputb. when the economy is expanding at a rapid pacec. when inflation is at 10% per yeard. when the current unemployment rate is below the natural rate of unemploymente. when the current unemployment rate is above the natural rate of unemployment

____ 190. When aggregate demand is low enough to drive unemployment above the natural rate:a. there is downward pressure on the price level and the government may want to conduct

contractionary fiscal policy.b. the economy is entering into an expansion and the government may want to conduct contractionary

fiscal policy.c. there is upward pressure on the price level and the government may want to conduct contractionary

fiscal policy.d. there is upward pressure on the price level and the government may want to conduct expansionary

fiscal policy.e. there is downward pressure on the price level and the government may want to conduct

expansionary fiscal policy.____ 191. As part of the Economic Stimulus Act of 2008, the typical family of four received:

a. an extension on unemployment benefits.b. an increase in pay.c. food stamps to buy basic necessities.d. free job training.e. a rebate check for $1,800.

____ 192. The first of two significant fiscal policy initiatives enacted by the government during the Great Recession, signed in February 2008 by President George W. Bush, was the:a. Economic Stimulus Act of 2008.b. American Recovery and Reinvestment Act of 2008.c. American Stimulus Act of 2008.d. Economic Recovery and Reinvestment Act of 2008.e. Economic Tax Rebate Act of 2008.

____ 193. The second of two significant fiscal policy initiatives enacted by the government during the Great Recession, signed in February 2009 by President Barack Obama, was the:a. Economic Stimulus Act of 2009.b. American Recovery and Reinvestment Act of 2009.c. American Stimulus Act of 2009.d. Economic Recovery and Reinvestment Act of 2009.e. Economic Tax Rebate Act of 2009.

____ 194. The Economic Stimulus Act of 2008 focused on _________, whereas the American Recovery and Reinvestment Act of 2009 focused on _________.

a. monetary policy; fiscal policyb. fiscal policy; monetary policyc. taxes; government spendingd. government spending; taxese. contractionary fiscal policy; expansionary fiscal policy

____ 195. During recessionary periods:a. outlays increase and tax revenue falls.b. outlays increase and tax revenue increases.c. outlays decrease and tax revenue increases.d. outlays decrease and tax revenue falls.e. outlays and tax revenue stay the same.

____ 196. When the government decreases spending or increases taxes to slow economic expansion, the government is conducting:a. expansionary monetary policy.b. expansionary fiscal policy.c. contractionary monetary policy.d. contractionary fiscal policy.e. neither monetary policy nor fiscal policy.

____ 197. Which of the following would be the theoretical outcome of contractionary fiscal policy in the following aggregate demand–aggregate supply model, where LRAS is long-run aggregate supply and SRAS is short-run aggregate supply?

a. The aggregate demand (AD) curve would shift from AD1 to AD2.b. The short-run aggregate supply (SRAS) curve would shift from SRAS2 to SRAS1.c. The SRAS curve would shift from SRAS1 to SRAS2.d. The AD curve would shift from AD1 to AD2 at the same time that the SRAS curve would shift from

SRAS1 to SRAS2.e. The AD curve would shift from AD2 to AD1.

____ 198. If the economy starting at full-employment output begins to enter into an expansion, one would expect Congress and the president to conduct:a. expansionary fiscal policy.b. expansionary monetary policy.c. contractionary fiscal policyd. contractionary monetary policy.e. countercyclical monetary policy.

____ 199. Congress and the president would conduct contractionary fiscal policy in order to:a. try to control inflation.

b. prevent the economy from falling into a recession.c. control the money supply.d. raise the budget deficit.e. try to stimulate the economy toward expansion.

____ 200. The goal of contractionary fiscal policy is to shift the __________ curve to the __________.a. aggregate demand; leftb. aggregate demand; rightc. short-run aggregate supply; rightd. short-run aggregate supply; lefte. long-run aggregate supply; left

____ 201. A government might want to reduce aggregate demand if it believes that:a. the economy is in long-run equilibrium.b. the economy is above the natural rate of unemployment.c. the economy is producing below full-employment output.d. the economy is expanding past its long-run capabilities.e. the economy is in a recession.

____ 202. If the unemployment rate falls below the natural rate of unemployment (u*):a. the government will want to conduct expansionary fiscal policy.b. the Federal Reserve will want to conduct expansionary monetary policy.c. the economy is in a recession.d. there will be no worries about inflation.e. the government will want to conduct contractionary fiscal policy.

____ 203. When aggregate demand is high enough to drive unemployment below the natural rate:a. there is downward pressure on the price level and the government may want to conduct

contractionary fiscal policy.b. the economy is slipping into a recession and the government may want to conduct expansionary

fiscal policy.c. there is upward pressure on the price level and the government may want to conduct contractionary

fiscal policy.d. there is upward pressure on the price level and the government may want to conduct expansionary

fiscal policy.e. there is downward pressure on the price level and the government may want to conduct

expansionary fiscal policy.____ 204. All else being equal, people generally prefer __________ in their financial affairs.

a. volatilityb. smoothness and predictabilityc. uncertaintyd. government interventione. ups and downs

____ 205. Countercyclical fiscal policy:a. is fiscal policy that seeks to counteract business-cycle fluctuations.b. only includes expansionary fiscal policy.c. only includes contractionary fiscal policy.d. attempts to counteract pro-cyclical fiscal policy.e. is no longer used by the government.

____ 206. Fiscal policy that seeks to counteract business-cycle fluctuations is:a. pro-cyclical fiscal policy.b. expansionary fiscal policy.c. contractionary fiscal policy.d. discretionary fiscal policy.e. countercyclical fiscal policy.

____ 207. Countercyclical fiscal policy attempts to:a. smooth out expansions and recessions in the business cycle.b. prevent economies from falling into recession.

c. prevent economies from entering into expansion.d. maximize expansions and minimize recessions.e. maximize expansions and maximize recessions.

____ 208. Marginal propensity to consume is:a. the portion of additional income that is saved.b. the portion of total income that is spent on consumption.c. the portion of additional income that is spent on consumption.d. the portion of total income that is saved.e. the portion of additional income that is taxed.

____ 209. To determine the total impact on spending from an initial change of a given amount, you could use:a. the Laffer curve.b. the spending multiplier.c. monetary policy.d. fiscal policy.e. automatic stabilizers.

____ 210. Where MPC is the marginal propensity to consume, the formula for the spending multiplier is:a. 1 – MPC.b. 1 + MPC.c. 1/(1 + MPC).d. 1/(1 – MPC).e. 1/MPC.

____ 211. If your marginal propensity to consume is 0.75 and you get an additional $400 in income, you would spend ___________ on consumption.a. $400.00b. $200.00c. $533.33d. $300.00e. $1,600.00

____ 212. If the marginal propensity to consume is equal to 0.75, the spending multiplier is equal to:a. 4.0.b. 1.75.c. 0.25.d. 0.57.e. 1.33.

Refer to the following figure to answer the questions that follow.

____ 213. According to the figure, if the government increases spending by only $4 billion in an effort to shift aggregate demand enough to return to long-run equilibrium, the marginal propensity to consume must be equal to:a. 0.75.b. 0.8.

c. 1.33.d. 1.57.e. 0.6.

____ 214. An example of the multiplier effect is when:a. the government increases government spending initially by $100 billion, and total income in the

economy increases by less than $100 billion.b. an increase in the price level leads to a shift in the aggregate demand curve.c. the government increases government spending initially by $100 billion, and total income in the

economy increases by more than $100 billion.d. an increase in government spending leads to a decrease in private investment.e. short-run aggregate supply shifts in a response to fiscal policy.

____ 215. Three issues that arise in the application of activist fiscal policy are:a. time lags, outsourcing, and government debt.b. government debt, crowding-out, and savings shifts.c. time lags, crowding-out, and government debt.d. outsourcing, crowding-out, and government debt.e. time lags, crowding-out, and savings shifts.

____ 216. Time lags, crowding-out, and savings shifts are all:a. examples of automatic stabilizers.b. issues that arise in the application of activist fiscal policy.c. examples of countercyclical fiscal policy.d. types of governmental policy.e. arguments in favor of fiscal policy.

____ 217. The three time lags that accompany policy decisions are:a. recognition lag, implementation lag, and impact lag.b. crowding-out lag, implementation lag, and impact lag.c. recognition lag, implementation lag, and countercyclical lag.d. crowding-out lag, implementation lag, and countercyclical lag.e. crowding-out lag, stabilizing lag, and countercyclical lag.

____ 218. An implementation lag happens because:a. it is easy to implement fiscal policy.b. it is difficult to determine when the economy is turning up or down.c. in most nations, one or more governing bodies must approve government spending or new tax

policies.d. it takes time for the complete effects of monetary and fiscal policy to materialize.e. it is impossible to implement fiscal policy with a divided House of Representatives and Senate.

____ 219. An impact lag happens because:a. the impacts of recessions are felt sooner than the impacts of expansions.b. it is difficult to determine when the economy is turning up or down.c. in most nations, one or more governing bodies must approve government spending or new tax

policies.d. it takes time for the complete effects of monetary and fiscal policy to materialize.e. the impacts of recessions are felt sooner than the impacts of expansions.

____ 220. In most nations, one or more governing bodies must approve government spending or new tax policies. This causes ___________ between setting fiscal policy and seeing its effects.a. a recognition lagb. an implementation lagc. an impact lagd. a countercyclical lage. an automatic lag

____ 221. A recognition lag happens because:a. it takes time to recognize the true long-run growth rate in the economy.b. it is difficult to determine when the economy is turning up or down.c. in most nations, one or more governing bodies must approve government spending or new tax

policies.d. it takes time for the complete effects of monetary and fiscal policy to materialize.e. it is difficult to recognize what the unemployment rate is.

____ 222. If the effects of expansionary fiscal policy hit when the economy is already expanding:a. the effects could lead to even deeper recession.b. the policy will have no effect.c. the policy is called an automatic stabilizer.d. it may lead to excessive aggregate demand and inflation.e. it will lead to high rates of unemployment along with high rates of inflation, known as stagflation.

____ 223. If lags cause the effects of fiscal policy to be delayed for a long period of time:a. the policy will magnify recessions and eliminate expansion.b. there is no way the policy can smooth out the business cycle.c. the policy will magnify expansions and eliminate recessions.d. fiscal policy will do nothing to the economy.e. there is a risk that the policy can actually magnify the business cycle.

____ 224. Automatic stabilizers:a. are government programs that automatically implement countercyclical monetary policy in

response to economic conditions.b. must be approved by Congress every time they are to be implemented.c. experience recognition lags.d. experience implementation lags.e. are government programs that automatically implement countercyclical fiscal policy in response to

economic conditions.____ 225. ___________ is an example of an automatic stabilizer.

a. The fiscal multiplierb. The spending multiplierc. The Keynesian multiplierd. Unemployment compensatione. The American Recovery and Reinvestment Act of 2009

____ 226. ___________ can eliminate recognition lags and implementation lags and thereby alleviate some concerns of destabilizing fiscal policy.a. Automatic stabilizersb. Discretionary fiscal policyc. Monetary policyd. Expansionse. Recession

____ 227. The “crowding-out” critique is based on the idea that:a. consumption increases when government spending increases.b. government spending may be a substitute for private spending.c. time lags crowd out the effects of fiscal policy.d. supply-side fiscal policy does not increase total output.e. increases in government spending and decreases in taxes are offset by increases in savings.

____ 228. If the government starts a new program where it buys every family that lives in Florida a new air conditioner, one may argue this could lead to:a. a budget surplus.b. a shift in aggregate supply.c. supply-side fiscal policy.d. a savings shift.e. crowding-out.

____ 229. The assertion that increases in government spending and decreases in taxes are largely offset by increases in savings is called:a. implementation lag.b. impact lag.c. savings lag.

d. the new classical critique.e. crowding-out.

____ 230. The new classical critique of fiscal policy asserts that:a. decreases in government spending and increases in taxes are largely offset by increases in savings.b. recognition lags make it difficult to time fiscal policy.c. implementation lags make it hard to get fiscal-policy proposals through the government.d. impact lags make it difficult to know how much the spending multiplier will impact the total

income in an economy.e. increases in government spending and decreases in taxes are largely offset by increases in savings.

____ 231. If current savings increases the same amount as the federal stimulus:a. the budget deficit will not increase.b. the effects of the stimulus are negated.c. the government will continue to conduct fiscal policy.d. consumption must also increase.e. the effects of the stimulus are multiplied.

____ 232. Depending on how fiscal policy is implemented, it can affect:a. only aggregate demand.b. only aggregate supply.c. both aggregate demand and aggregate supply.d. neither aggregate demand nor aggregate supply.e. monetary policy.

____ 233. Typical fiscal policy focuses squarely on:a. aggregate demand.b. short-run aggregate supply.c. long-run aggregate supply.d. government spending.e. taxes.

____ 234. A technological advancement allows for:a. a reduction in structural unemployment.b. a greater multiplier effect.c. a lesser multiplier effect.d. production of a greater quantity of output using a greater quantity of inputs.e. production of a greater quantity of output using the same or fewer inputs.

____ 235. Research and development (R&D) tax credits:a. will shift the aggregate demand curve to the right.b. are examples of automatic stabilizers.c. allow firms to spend resources to develop new technology, which in turn can lead to future

production.d. will shift the long-run aggregate supply curve to the left.e. are not examples of supply-side fiscal policy initiatives.

____ 236. Policies that focus on education:a. will affect aggregate supply immediately.b. are examples of an automatic stabilizer.c. are not examples of a supply-side fiscal policy initiative.d. will shift the long-run aggregate supply curve to the left over time.e. increase effective labor resources and thus increase aggregate supply over time.

____ 237. Supply-side fiscal policy:a. has been proven not to work.b. takes time to affect aggregate supply.c. has immediate effects on aggregate supply.d. includes increases in government employees’ pay and individual tax breaks.e. is emphasized as a short-run solution to growth problems.

____ 238. Lower corporate profit tax rates:a. will always decrease total tax revenues in the long run.

b. create incentives for individuals to work and produce less.c. create incentives for individuals to work harder and produce more.d. decrease the incentives for corporations to undertake activities that generate more profit.e. increase the incentives for corporations to undertake activities that generate more profit.

____ 239. The relationship between tax rates and tax revenue:a. is a positive correlation.b. is a negative correlation.c. is one of the most highly controversial in politics.d. is highly agreed upon in politics.e. is unknown for all levels of marginal tax rates.

____ 240. Politicians who always advocate for tax rate cuts, no matter how large the budget deficit is, claim that:a. a tax rate cut always leads to a decrease in tax revenues.b. a tax rate cut always leads to an increase in tax revenues.c. a tax rate cut always leads to reelection.d. a tax rate cut is easier to pass through legislation than a tax rate increase is.e. a budget deficit is nothing to worry about if there is a high rate of inflation.

____ 241. In 1962, the marginal tax rates were as high as:a. 100%.b. 80%.c. 57%.d. 26%.e. 91%.

____ 242. One argument for tax cuts when the government is running a budget deficit is:a. that lower tax revenue will reduce the budget deficit.b. that lower marginal tax rates will incentivize employers to hire more workers.c. that lower corporate tax rates will incentivize people to work and thus increase the overall tax

revenue.d. that lower marginal tax rates will incentivize people to work and thus increase the overall tax

revenue.e. that lower marginal tax rates will decrease aggregate supply.

____ 243. At ___________ tax rates, ___________ in those tax rates lead to ___________ in total tax revenue.a. high; increases; increasesb. low; increases; decreasesc. low; decreases; increasesd. low; decreases; decreasese. high; decreases; decreases

____ 244. Income tax revenue is calculated by:a. tax rate income.b. tax rate + income.c. income tax rate.d. tax rate/income.e. income/tax rate.

____ 245. An illustration of the relationship between tax rates and tax revenues is called:a. the Laffer curve.b. the new classical critique.c. the aggregate demand–aggregate supply model.d. the loanable funds market.e. the marginal tax curve.

____ 246. The y axis for the Laffer curve represents:a. the tax revenue.b. the tax rate.c. real gross domestic product (GDP).d. the price level.e. the inflation rate.

____ 247. Generally, _____________ public figures tend to stress Region II of the Laffer curve, where tax rate reductions lead to _____________ tax revenue. _____________ emphasize Region I, where rate increases lead to _____________ tax revenue. Both regions are important for economic policy.a. conservative; increased; Liberals; lessb. conservative; decreased; Liberals; morec. liberal; increased; Conservatives; lessd. no; increased; Liberals and conservatives; lesse. liberal and conservative; decreased; Neither liberals nor conservatives; moreRefer to the following figure to answer the questions that follow.

____ 248. According to the figure, which point(s) would see tax revenues increase if the tax rate increased?a. only Ab. only Bc. A and Bd. A and Ce. B and C

____ 249. According to the figure, which point(s) would see tax revenues decrease if the tax rate increased?a. only Ab. only Bc. A and Bd. A and Ce. B and C

____ 250. According to the figure, which point(s) would see tax revenues decrease if the tax rate decreased?a. only Ab. only Bc. A and Cd. A and Be. B and C

1. Mandatory outlays:a. usually change during the budget process.b. cannot be altered once they are made into law.c. require changes in existing laws if those outlays are to be altered.d. are a minor component of total outlays, and so are usually ignored.e. are another name for discretionary outlays.2. Which of the following is not a revenue source for the U.S. federal government?a. sales taxesb. federal gasoline taxesc. federal income taxesd. payroll taxese. admission fees for national parks3. The largest source of tax revenue for the government is:a. individual income taxes.b. corporate income taxes.c. social insurance taxes.d. estate taxes.e. excise taxes.4. The United States has a:a. progressive income tax system.b. regressive income tax system.c. marginal income tax system.d. good income tax system.e. bad income tax system.5. By 1918, the top marginal income tax rate in the United States rose to:a. 77%.b. 76%.c. 75%.d. 74%.e. 73%.6. A U.S. federal government budget deficit occurs when:a. government revenue exceeds outlays.b. government outlays exceed revenue.c. government outlays equal revenue.d. the United States borrows money from foreign countries.e. the United States lends money to foreign countries.7. The most recent federal budget surplus occurred:a. never; the government has always run a budget deficit.b. in 1959.c. in 2012.d. in 2006.e. in 2001.

8. If government revenues in 2011 were $2.2 trillion and government outlays were $3.8 trillion:a. the federal debt was unaffected in that year.b. the federal debt decreased $1.6 trillion.c. the federal debt increased $1.6 trillion.d. the federal budget surplus was $1.6 trillion.e. the federal budget was balanced.9. Why did tax revenues fall so sharply after 2007?a. Tax rates were drastically lowered.

b. A slowdown in economic activity increased unemployment.c. Many people moved out of the country because of increased tax rates.d. A large increase in the number of retirees led to a decrease in the amount of people paying taxes.e. Congress approved tax cuts in the prior year.10. According to the textbook, the country with the highest debt-to-GDP (gross domestic product) ratio in the world, in terms of publicly held debt, is:a. the United States.b. Greece.c. Italy.d. France.e. Japan.Use the following table to answer the questions that follow.11. According to the table, the country with the highest average yearly budget deficit over the time period is:a. the United States.b. France.c. Italy.d. Belgium.e. Australia.

12. According to the table, the country with the largest increase in the debt-to-GDP ratio over the time period is:a. the United States.b. France.c. Italy.d. Belgium.e. Australia.13. According to the table, which country appeared to be in the worst fiscal shape in 2012?a. United Statesb. Francec. Italyd. Belgiume. Australia14. Why is foreign government ownership of U.S. debt not currently a huge concern among many economists?a. It could lead to eventual foreign control of our economy and policies, which would encourage economic growth in the future.b. The United States has a proven track record of negotiating debt-forgiveness deals, so it is unlikely that the debt will have to be paid back.c. Foreign ownership of U.S. debt drives interest rates up, which is good for savers in the United States.d. The amount of debt held by foreigners is substantially less than the money the United States owes itself.e. Foreign countries would bail out the United States if its debt ever became too large to manage.15. Which country holds the most U.S. debt?a. Chinab. United Kingdomc. Japand. Germanye. United States

____ 1. Fiscal policy is:a. the use of the money supply to influence the economy.b. actions taken by the Federal Reserve to influence the economy.c. only used during times of recession.d. only used during times of expansion.e. the use of government spending and taxes to influence the economy.____ 2. Monetary policy is:a. the use of the money supply to influence the economy.b. action taken by Congress to influence the economy.c. only used during times of recession.d. only used during times of expansion.e. the use of government spending and taxes to influence the economy.____ 3. Expansionary fiscal policy occurs when:a. the government decreases spending or increases taxes to stimulate the economy toward expansion.b. the government decreases spending or decreases taxes to stimulate the economy toward expansion.c. the government increases spending or increases taxes to stimulate the economy toward expansion.d. the government increases spending or decreases taxes to stimulate the economy toward expansion.e. the Federal Reserve increases money supply to stimulate the economy toward expansion.____ 4. If the economy begins to fall into a recession, one would expect Congress and the president to conduct:a. expansionary fiscal policy.b. expansionary monetary policy.c. contractionary fiscal policy.d. contractionary monetary policy.e. countercyclical monetary policy.____ 5. The goal of expansionary fiscal policy is to shift the _________ curve to the _________.a. aggregate demand; leftb. aggregate demand; rightc. short-run aggregate supply; rightd. short-run aggregate supply; lefte. long-run aggregate supply; left

____ 6. Expansionary fiscal policy leads to:a. decreases in budget deficits and the national debt during economic downturns.b. contractionary fiscal policy the following year.c. increases in budget deficits and the national debt during economic downturns.d. increases in budget surpluses and decreases in the national debt during economic downturns.e. contractionary monetary policy the following year.____ 7. During recessionary periods:a. outlays increase and tax revenue falls.b. outlays increase and tax revenue increases.c. outlays decrease and tax revenue increases.d. outlays decrease and tax revenue falls.e. outlays and tax revenue stay the same.

____ 8. If the economy starting at full-employment output begins to enter into an expansion, one would expectCongress and the president to conduct:a. expansionary fiscal policy.b. expansionary monetary policy.c. contractionary fiscal policyd. contractionary monetary policy.e. countercyclical monetary policy.____ 9. Congress and the president would conduct contractionary fiscal policy in order to:a. try to control inflation.b. prevent the economy from falling into a recession.c. control the money supply.d. raise the budget deficit.e. try to stimulate the economy toward expansion.____ 10. The goal of contractionary fiscal policy is to shift the __________ curve to the __________.a. aggregate demand; leftb. aggregate demand; rightc. short-run aggregate supply; rightd. short-run aggregate supply; lefte. long-run aggregate supply; left____ 11. If the unemployment rate falls below the natural rate of unemployment (u*):a. the government will want to conduct expansionary fiscal policy.b. the Federal Reserve will want to conduct expansionary monetary policy.c. the economy is in a recession.d. there will be no worries about inflation.e. the government will want to conduct contractionary fiscal policy.____ 12. Countercyclical fiscal policy:a. is fiscal policy that seeks to counteract business-cycle fluctuations.b. only includes expansionary fiscal policy.c. only includes contractionary fiscal policy.d. attempts to counteract pro-cyclical fiscal policy.e. is no longer used by the government.

____ 13. Countercyclical fiscal policy consists of:a. using expansionary fiscal policy during times of expansion and contractionary fiscal policy during times of recession.b. using expansionary fiscal policy during times of recession and contractionary fiscal policy during times of recession.c. using expansionary fiscal policy during times of expansion and contractionary fiscal policy during times of expansion.d. using expansionary fiscal policy during times of recession and contractionary iscalpolicy during times of expansion.e. using expansionary fiscal policy and contractionary fiscal policy at the same time.____ 14. Marginal propensity to consume is:a. the portion of additional income that is saved.b. the portion of total income that is spent on consumption.c. the portion of additional income that is spent on consumption.d. the portion of total income that is saved.

e. the portion of additional income that is taxed.____ 15. An initial increase in government spending of $100 billion can create more than $100 billion through what economists call:a. a multiplier effect.b. an enhancement effect.c. an interest rate effect.d. an aggregate supply effect.e. a wealth effect.____ 16. The spending multiplier is:a. a formula to determine the total impact on savings from an initial change of a given amount.b. a formula to determine the total impact on consumption from an initial change of a given amount.c. only used when government spending increases.d. a formula to determine the total impact on spending from an initial change of a given amount.e. only used when government spending decreases.____ 17. If your income increases by $1,500 and you only consume $900 of it, your marginal propensity to consume would be equal to:a. 600.00.b. 0.50.c. 0.75.d. 0.40.e. 0.60.____ 18. If the marginal propensity to consume is equal to 0.75, the spending multiplier is equal to:a. 4.0.b. 1.75.c. 0.25.d. 0.57.e. 1.33.

____ 19. If the spending multiplier is 5, what is the marginal propensity to consume in the economy?a. 0.4b. −0.8c. 0.5d. 0.75e. 0.8____ 20. An example of the multiplier effect is when:a. the government increases government spending initially by $100 billion, and total income in the economy increases by less than $100 billion.b. an increase in the price level leads to a shift in the aggregate demand curve.c. the government increases government spending initially by $100 billion, and total income in the economy increases by more than $100 billion.d. an increase in government spending leads to a decrease in private investment.e. short-run aggregate supply shifts in a response to fiscal policy.____ 21. Three issues that arise in the application of activist fiscal policy are:a. time lags, outsourcing, and government debt.b. government debt, crowding-out, and savings shifts.c. time lags, crowding-out, and government debt.d. outsourcing, crowding-out, and government debt.

e. time lags, crowding-out, and savings shifts.____ 22. An implementation lag happens because:a. it is easy to implement fiscal policy.b. it is difficult to determine when the economy is turning up or down.c. in most nations, one or more governing bodies must approve government spending or new tax policies.d. it takes time for the complete effects of monetary and fiscal policy to materialize.e. it is impossible to implement fiscal policy with a divided House of Representatives and Senate.____ 23. An impact lag happens because:a. the impacts of recessions are felt sooner than the impacts of expansions.b. it is difficult to determine when the economy is turning up or down.c. in most nations, one or more governing bodies must approve government spending or new tax policies.d. it takes time for the complete effects of monetary and fiscal policy to materialize.e. the impacts of recessions are felt sooner than the impacts of expansions.____ 24. It is difficult to determine when the economy is turning up or down. This is because there is ___________ that delays the effects of changes in fiscal policy.a. a time lagb. an implementation lagc. an impact lagd. a countercyclical lage. an automatic lag

____ 25. If lags cause the effects of fiscal policy to be delayed for a long period of time:a. the policy will magnify recessions and eliminate expansion.b. there is no way the policy can smooth out the business cycle.c. the policy will magnify expansions and eliminate recessions.d. fiscal policy will do nothing to the economy.e. there is a risk that the policy can actually magnify the business cycle.____ 26. Automatic stabilizers:a. are government programs that automatically implement countercyclical monetary policy in response to economic conditions.b. must be approved by Congress every time they are to be implemented.c. experience recognition lags.d. experience implementation lags.e. are government programs that automatically implement countercyclical fiscal policy in response to economic conditions.____ 27. ___________ is an example of an automatic stabilizer.a. The fiscal multiplierb. The spending multiplierc. The Keynesian multiplierd. Unemployment compensatione. The American Recovery and Reinvestment Act of 2009____ 28. The “crowding-out” critique is based on the idea that:a. consumption increases when government spending increases.b. government spending may be a substitute for private spending.c. time lags crowd out the effects of fiscal policy.d. supply-side fiscal policy does not increase total output.e. increases in government spending and decreases in taxes are offset by

increases in savings.____ 29. Supply-side fiscal policy involves the use of:a. government spending and taxes to affect the consumption side of the economy.b. government spending and taxes to affect the production side of the economy.c. government spending and taxes to affect the net exports side of the economy.d. monetary policy to supplement traditional fiscal policy.e. government spending and taxes to affect the aggregate demand curve.____ 30. Supply-side fiscal policy will lead to:a. an outward rotation of the long-run aggregate supply curve.b. a rightward shift of the aggregate demand curve.c. a rightward shift of the long-run aggregate supply curve.d. an inward rotation of the long-run aggregate supply curve.e. a leftward shift of the long-run aggregate supply curve.

____ 31. Which of the following fiscal policy initiatives focuses on the supply side of the economy?a. lower marginal income tax ratesb. building roads and bridgesc. personal tax refundsd. increased pay for government employeese. higher marginal tax rates____ 32. The relationship between tax rates and tax revenue:a. is a positive correlation.b. is a negative correlation.c. is one of the most highly controversial in politics.d. is highly agreed upon in politics.e. is unknown for all levels of marginal tax rates.____ 33. Politicians who always advocate for tax rate cuts, no matter how large the budget deficit is, claim that:a. a tax rate cut always leads to a decrease in tax revenues.b. a tax rate cut always leads to an increase in tax revenues.c. a tax rate cut always leads to reelection.d. a tax rate cut is easier to pass through legislation than a tax rate increase is.e. a budget deficit is nothing to worry about if there is a high rate of inflation.____ 34. In 1962, the marginal tax rates were as high as:a. 100%.b. 80%.c. 57%.d. 26%.e. 91%.____ 35. At ___________ tax rates, ___________ in those tax rates lead to ___________ in total tax revenue.a. low; increases; increasesb. low; increases; decreasesc. low; decreases; increasesd. high; increases; increasese. high; decreases; decreases____ 36. The Laffer curve is:a. an assertion that increases in government spending and decreases in taxes are largely offset by increases in savings.b. an illustration of the relationship between the price level and real output.c. an illustration of the relationship between tax rates and tax revenues.

d. an illustration of the relationship between government spending and taxes.e. an illustration of real gross domestic product (GDP) over time.

1. Money does NOT function as:a. a unit of account.b. a medium of exchange.c. a means to buy goods and services.d. an item to barter.e. a store of value.2. For something to be considered money, it must:a. be of low intrinsic value.b. be of high intrinsic value.c. have the backing of the government.d. not be generally accepted as a medium of exchange.e. be generally accepted as a medium of exchange.3. When money is acting as a medium of exchange, it:a. stops you from reselling goods once they are purchased.b. allows you to delay the purchase of goods.c. allows you to measure the value of goods precisely.d. allows you to make exchanges more efficiently.e. allows you to make exchanges less efficiently.4. What function of money is highlighted when I pay for my cell phone bill with cash?a. fiat moneyb. medium of exchangec. unit of accountd. store of valuee. commodity money5. In economic terms, how would you state what has happened when your neighbor says he is unwilling to help you mow your lawn because you are unwilling to help him teach his kids how to speak with a British accent?a. The medium of exchange was too high.b. Your neighbor’s unwillingness to mow your lawn reflects a lack of store of value.c. The double coincidence of wants was not satisfied.d. The three functions of money were not satisfied.e. Your unwillingness to provide British-accent tutoring services reflects that too much fiat money is available.6. When money is acting as a unit of account, it:a. allows you to speed up the purchase of goods.b. allows you to delay the purchase of goods.c. allows you to measure the value of goods precisely.d. allows you to make exchanges more efficiently.e. allows you to make exchanges less efficiently.

7. What function of money is highlighted when I am comparing the price of one product to another?a. fiat moneyb. store of valuec. medium of exchanged. unit of account

e. commodity money8. What function of money is highlighted when I am depositing a portion of my paycheck into my savings account to pay for my child’s future education?a. fiat moneyb. medium of exchangec. unit of accountd. store of valuee. commodity money9. If the government were to print more money, which of the following would occur?a. There would be no changes to M1 or M2.b. M1 would decrease; M2 would increase.c. Both M1 and M2 would increase.d. Both M1 and M2 would decrease.e. M1 would increase; M2 would decrease.10. If I were to receive cash from my sister and I deposited it into my checking account, which of the following changes would occur?a. M1 and M2 would remain unchanged.b. M1 would decrease; M2 would increase.c. Both M1 and M2 would increase.d. Both M1 and M2 would decrease.e. M1 would increase; M2 would decrease.Refer to the following table to answer the questions that follow.11. Using the table, what is the value of M1 (remember that M1 includes travellers checks - it’s not part of the formula since it’s a small part of the money supply, but use this information for this and the next question)?a. $13,500,000b. $46,500,000c. $47,500,000d. $57,500,000e. $65,000,000

12. Using the table, what is the value of M2?a. $13,500,000b. $46,500,000c. $47,500,000d. $57,500,000e. $65,000,00013. Which is he largest component of M2? (This questions refers to the US measure of the money supply, not the made-up numbers in the previous table).a. savings deposits.b. checking deposits.c. currency.d. small time deposits.e. money market mutual funds.Use the following example to answer the questions that follow:Imagine that you deposit $25,000 in currency (which you had been storing in your closet), into your checking account at the bank. Assume that this institution has a required reserve ratio of 25%.14. As a result of this deposit, by how much will the bank’s reserves increase?a. $0b. $6,250c. $25,000

d. $31,250e. $100,00015. As a result of this deposit, by how much will the bank’s required reserves increase?a. $0b. $6,250c. $25,000d. $31,250e. $100,00016. As a result of this deposit, by how much will the bank’s excess reserves increase?a. $0b. $18,750c. $25,000d. $31,250e. $100,00017. As a result of this deposit, what is the maximum amount the bank can hold as loans?a. $0b. $18,750c. $25,000d. $31,250e. $100,00018. What is true about banks in a fractional reserve banking system?a. Banks can lend all of the deposits that are received.b. Banks have to purchase gold that has the value of the deposits received.c. Banks must deposit all cash from depositors with the Federal Reserve.d. Banks face the risk of not having enough cash to meet withdrawal needs.e. Banks have to deposit all cash from depositors in their own bank vault.

19. If a bank has a required reserve ratio of 25% and there is $10,000 in deposits, what is the amount of required reserves?a. $40,000b. $10,000c. $0d. $2,500e. $5,00020. If a bank has a required reserve ratio of 25% and there is $10,000 in deposits, what is the maximum amount of loans that can be made by this bank?a. $40,000b. $10,000c. $0d. $2,500e. $7,50021. If a bank has a required reserve ratio of 10%, excess reserves of $10,000,000, and deposits of $500,000,000, how much can the bank lend out?a. $10,000,000b. $40,000,000c. $50,000,000d. $100,000,000e. $510,000,00022. If a bank has a required reserve ratio of 30%, excess reserves of $45,000,000, and deposits of $100,000,000, how much can the bank lend out?

a. $13,500,000b. $30,000,000c. $43,500,000d. $45,000,000e. $145,000,00023. How is it that the banking system is able to lend by a multiple of its excess reserves?a. Banks only have to hold a fraction of their deposits as reserves and can lend the rest to borrowers.b. Banks are required to hold only enough cash to meet the withdrawal needs of depositors.c. Loans can be made to borrowers.d. Required reserves have to be vault cash.e. Banks must hold their required reserves at the Federal Reserve.24. Which of the following is true about banks in a fractional reserve banking system?a. Banks are able to create money when excess reserves are lent to individuals who need to borrow money.b. Banks can lend all of the deposits that are received.c. Banks must purchase gold that equals the value of the deposits received.d. Banks must deposit all cash from depositors with the Federal Reserve.e. Banks have to deposit all cash from depositors in their own bank vault.

25. If the required reserve ratio is 10%, what is the simple deposit multiplier?a. 20b. 100c. 5d. 10e. 226. To decrease the money supply, the Federal Reserve could do which of the following?a. increase the discount rateb. decrease the required reserve ratioc. forbid the reselling of U.S. Treasury securitiesd. encourage banks to lend money to borrowerse. conduct an open market purchase of U.S. Treasury securities27. The purchase of existing U.S. Treasury securities by the Federal Reserve:a. will have no effect on the money supply.b. will decrease the money supply.c. will increase the money supply.d. will decrease the reserves at banks.e. will increase the amount of U.S. Treasury securities held at banks.

____ 1. Mandatory outlays are different than discretionary outlays because:a. mandatory outlays usually change during the budget process, whereas discretionary outlays do not.b. mandatory outlays have been decreasing as a percentage of the federal budget, whereas discretionary outlays have been increasing as a percentage of the federal budget.c. discretionary outlays can be changed during the annual budget process, whereas mandatory outlays cannot.

d. discretionary outlays include entitlement programs (such as Social Security and Medicare), whereas mandatory outlays include important government programs (such as defense).e. discretionary outlays comprise the vast majority of the total budget, whereas mandatory outlays make up only a minor fraction.____ 2. Why do Social Security and Medicare pose problems for the federal government budget?a. The programs do not cover enough people.b. The worker-to-retiree ratio is decreasing.c. The number of retirees is decreasing.d. The number of sick people is rising too quickly.e. Social insurance taxes are capped and cannot be raised.____ 3. If policymakers are concerned about the unequal distribution of income within society, then they should prefer a:a. regressive income tax system.b. progressive income tax system.c. consumption tax system.d. proportional income tax system.e. per capita tax system.Refer to the following table to answer the questions 4 and 5.____ 4. Using the table, what is the total federal income tax bill for someone who makes $67,000 per year?a. $16,750b. $12,780c. $11,169d. $10,050e. $6,700____ 5. Using the table, what is the marginal income tax rate for someone who makes $67,000 per year?a. 10.0%b. 14.2%c. 16.7%d. 25.0%e. 19.1%____ 6. What is the most appropriate way to compare budget deficits/surpluses across time?a. using nominal dollar figuresb. using real dollar figuresc. calculating figures as a portion of gross domestic product (GDP)d. using per capita dollar figurese. Budget figures cannot be compared across time.____ 7. If government revenues in 2011 were $2.2 trillion and government outlays were $3.8 trillion:a. the federal debt was unaffected.b. the federal debt decreased $1.6 trillion.c. the federal budget surplus was $1.6 trillion.d. the federal budget deficit was $1.6 trillion.e. the federal budget was balanced.____ 8. In recent years, the growth in foreign-owned debt has:a. substantially weakened the U.S. economy.b. helped the U.S. economy by keeping the supply of loanable funds higher than it would be otherwise.c. harmed the U.S. economy by driving up the cost of borrowing.

d. harmed the U.S. economy by sending jobs overseas.e. not affected the U.S. economy.____ 9. The goal of expansionary fiscal policy is to shift the _________ curve to the _________.a. aggregate demand; leftb. aggregate demand; rightc. short-run aggregate supply; rightd. short-run aggregate supply; lefte. long-run aggregate supply; left____ 10. If the unemployment rate falls below the natural rate of unemployment (u*):a. the government will want to conduct expansionary fiscal policy.b. the Federal Reserve will want to conduct expansionary monetary policy.c. the economy is in a recession.d. there will be no worries about inflation.e. the government will want to conduct contractionary fiscal policy.____ 11. If your income increases by $1,500 and you only consume $900 of it, your marginal propensity to consume would be equal to:a. 600.00.b. 0.50.c. 0.75.d. 0.40.e. 0.60.____ 12. If the spending multiplier is 5, what is the marginal propensity to consume in the economy?a. 0.4b. 0.8c. 0.5d. 0.75e. 0.8____ 13. An example of the multiplier effect is when:a. the government increases government spending initially by $100 billion, and total incomein the economy increases by less than $100 billion.b. an increase in the price level leads to a shift in the aggregate demand curve.c. the government increases government spending initially by $100 billion, and total income in the economy increases by more than $100 billion.d. an increase in government spending leads to a decrease in private investment.e. short-run aggregate supply shifts in a response to fiscal policy.____ 14. A recognition lag happens because:a. it takes time to recognize the true long-run growth rate in the economy.b. it is difficult to determine when the economy is turning up or down.c. in most nations, one or more governing bodies must approve government spending or new tax policies.d. it takes time for the complete effects of monetary and fiscal policy to materialize.e. it is difficult to recognize what the unemployment rate is.____ 15. If the effects of contractionary fiscal policy hit when the economy is already contracting:a. the effects could lead to even deeper recession.b. the policy will have no effect.c. the policy is called an automatic stabilizer.

d. it may lead to excessive aggregate demand and inflation.e. it will lead to stagflation.____ 16. Automatic stabilizers:a. are government programs that automatically implement countercyclical monetary policy inresponse to economic conditions.b. must be approved by Congress every time they are to be implemented.c. experience recognition lags.d. experience implementation lags.e. are government programs that automatically implement countercyclical fiscal policy in response to economic conditions.____ 17. Crowding-out occurs when:a. supply-side fiscal policy does not increase total output.b. consumption increases when government spending increases.c. private spending falls in response to increases in government spending.d. time lags crowd out the effects of fiscal policy.e. increases in government spending and decreases in taxes are offset by increases in savings.Refer to the following figure to answer question 18. The question assumes that the government borrows $50b.____ 18. According to the figure, the amount of private investment after government borrowing is:a. $50 billion.b. $25 billion.c. $100 billion.d. $150 billion.e. $275 billion.____ 19. Lowering marginal income tax rates for individuals:a. will always lead to more tax revenue.b. will always lead to less tax revenue.c. creates incentives for individuals to work and produce less.d. creates incentives for individuals to work harder and produce more.e. increases the incentives for corporations to undertake activities that generate more profit.____ 20. If I were to give cash to my mother for her birthday and she kept the cash under her mattress, which of the following changes would take place?a. M1 and M2 would remain unchanged.b. M1 and M2 would increase.c. M1 and M2 would decrease.d. M1 would increase; M2 would decrease.e. M1 would decrease; M2 would increase.____ 21. I have decided to use my credit card to purchase a new television. What is the immediate consequence of this purchase?a. There would be a decrease in M1 and an increase in M2.b. There would be an increase in M1 and an increase in M2.c. There would be no changes to M1 or M2.d. There would be a decrease in M1 and a decrease in M2.e. There would be an increase in M1 and a decrease in M2.____ 22. If Ann were to convert some of her checkable deposits into a certificate of deposit, which of the following changes would take place?a. M1 would decrease and then increase; M2 would increase and then decrease.b. There would be no changes to M1 or M2.c. M1 would decrease; there would be no change in M2.

d. M1 would increase; M2 would increase.e. M1 would decrease; M2 would decrease.____ 23. I have a checking account at the local bank, and my sister has a car loan at the same bank. How does each of these appear on the bank’s balance sheet?a. The checking account is a liability, and the car loan is an asset.b. The checking account is an asset, and the car loan is a liability.c. Both the checking account and the car loan are assets.d. Both the checking account and the car loan are liabilities.e. Both the checking account and the car loan are net worth.Use the following example to answer questions 24 and 25:Imagine that you deposit $25,000 in currency (which you had been storing in your closet), you’re your checking account at the bank. Assume that this institution has a required reserve ratio of 25%.____ 24. As a result of this deposit, by how much will the bank’s excess reserves increase?a. $0b. $18,750c. $25,000d. $31,250e. $100,000____ 25. As a result of this deposit, what is the maximum amount in loans that can be made by all the banks in the banking system?a. $0b. $18,750c. $25,000d. $31,250e. $100,000____ 26. If a bank has a required reserve ratio of 30%, excess reserves of $45,000,000, and deposits of $100,000,000, how much can the bank lend out?a. $13,500,000b. $30,000,000c. $43,500,000d. $45,000,000e. $145,000,000____ 27. To the extent a bank holds excess reserves, which of the following is a consequence?a. The deposit multiplier is smaller.b. The total amount of loans is larger.c. The deposit multiplier is larger.d. Owner’s equity for an individual bank is larger.e. Owner’s equity for an individual bank is smaller.____ 28. If the required reserve ratio is 10%, what is the simple deposit multiplier?a. 20b. 100c. 5d. 10e. 2____ 29. The purchase of existing U.S. Treasury securities by the Federal Reserve:a. will have no effect on the money supply.b. will decrease the money supply.c. will increase the money supply.d. will decrease the reserves at banks.

e. will increase the amount of U.S. Treasury securities held at banks.____ 30. Expansionary monetary policy:a. lowers interest rates, causing aggregate demand to shift to the right.b. lowers interest rates, causing aggregate demand to shift to the left.c. raises interest rates, causing aggregate demand to shift to the right.d. raises interest rates, causing aggregate demand to shift to the left.e. lowers interest rates, causing short-run aggregate supply to shift to the right.____ 31. Changes in the quantity of money lead to real changes in the economy. If this is the case, why would the central bank ever stop increasing the money supply?a. Although there is a short-run incentive to increase the money supply, these effects wear off in the long run as prices adjust and then drive up the value of money.b. The government has rules in place on the maximum amount the money supply can be increased in a given fiscal year.c. Although there is a short-run incentive to increase the money supply, these effects wear off in the long run as prices adjust and then drive down the value of money.d. Increasing the money supply is not a politically popular action and may lead to leaders of the central bank not getting reelected.e. The short-run benefits are outweighed by the short-run costs of increases in the money supply.____ 32. _______________________ would be hurt by unexpected inflation.a. Someone who borrowed money at a fixed interest rateb. A firm who hired a worker on a two-year wage contractc. A worker who signed a two-year wage contractd. A worker whose wage increases with inflatione. A firm that purchased inputs with a two-year contract____ 33. Which of the following explains why the money supply is not completely controlled by the Federal Reserve?a. The actions of private individuals and banks can increase or decrease the money supply via the money multiplier.b. The president can issue an executive order that can increase or decrease the money supply.c. The treasury has say over when the Federal Reserve can increase or decrease the money supply.d. The actions of private individuals and banks can increase or decrease the money supply via the spending multiplier.e. Congress has authority to veto any monetary policy enacted by the Federal Reserve.____ 34. Expectations:a. have no effect on monetary policy.b. have no effect on consumers’ spending habits.c. play a role in fiscal policy but not in monetary policy.d. can dampen the effects of monetary policy.e. are easily studied in economics.____ 35. According to the theory of monetary neutrality, in the long run:a. monetary policy is always more effective than fiscal policy.b. fiscal policy is always more effective than monetary policy.c. expansionary monetary policy is more effective than contractionary monetary policy.d. contractionary monetary policy is more effective than expansionary monetary policy.

e. there is a lack of real economic effects from monetary policy.Refer to the following figure to answer question 36:____ 36. According to the figure, if the policy is fully expected, expansionary monetary policy will cause an economy initially in full-employment equilibrium to move from:a. point A to B.b. point A to B and back to A.c. point A to B to C.d. point A to C and back to A.e. point A to C.____ 37. Only the short-run Phillips curve is downward sloping because:a. in the long run, prices adjust, eliminating the relationship between inflation and unemployment.b. in the long run, prices are sticky, eliminating the relationship between inflation and unemployment.c. central banks have no influence over the economy in the short run.d. central banks only have influence over the economy in the long run.e. long-run effects of monetary policy are negated by fiscal policy.____ 38. Studying alternative theories of how people form expectations is particularly relevant to monetary policy because:a. if people fully expect inflation to occur, the effects of monetary policy are more widespread.b. monetary policy can only have real effects on the economy if people fully expect inflation. c. unexpected inflation cause prices to be flexible.d. the effects of expected inflation are completely different from the effects of unexpected inflation.e. expected inflation cause prices to become sticky.____ 39. When inflation is not a surprise:a. the Phillips curve is downward sloping.b. activist monetary policy has a real effect on the economy.c. the economy is not at full-employment output.d. it does not affect the unemployment rate.e. the economy is expanding.____ 40. As expected inflation decreases, the short-run Phillips curve:a. shifts to the left.b. becomes flatter.c. becomes steeper.d. stays the same.e. shifts to the right.The following table shows the number of U.S. dollars required to buy one British pound between September 3, 2012, and April 1, 2013. Use this table to answer questions 41 and 42:____ 41. Between February 1, 2013, and March 1, 2013, the U.S. dollar ___________ against the British pound, and the British pound ___________ against the U.S. dollar.a. depreciated; appreciatedb. appreciated; depreciatedc. neither appreciated nor depreciated; depreciatedd. depreciated; neither appreciated nor depreciatede. appreciated; neither appreciated nor depreciated____ 42. On March 1, 2013, the price of a surfboard was 1,200 U.S. dollars in La Jolla, California. Based on the exchange rates quoted in the table, a surfboard was approximately __________ British pounds.a. 1,931

b. 1,950c. 1,883d. 1,805e. 798____ 43. The figure below depicts the supply of U.S. dollars in the foreign currency exchange market.A shift from D1 to D3 in the above figure could have been caused by:a. a decrease in the exchange rate from £1.2/$1 to £1.1/$1.b. an increase in the exchange rate from £1.1/$1 to £1.2/$1.c. an increase in demand for U.S. assets relative to British assets.d. an increase in U.S. interest rates relative to British interest rates.e. a decrease in British consumers’ demand for U.S. goods.____ 44. The national government or central bank of country X might take steps to purposefully depreciate their currency because:a. country X wants its currency to command more respect from international news reporters.b. consumers in country X would be able to purchase more goods from producers in country Y.c. producers in country X would be able to sell more goods to consumers in country Y.d. a depreciated currency would benefit both consumers and producers in country X.e. an appreciated currency would harm both consumers and producers in country Y.____ 45. In order to maintain a pegged exchange rate in China:a. the Chinese government must prevent Chinese citizens from trading goods or services with other countries.b. the Chinese government must prevent Chinese citizens from purchasing assets denominated in foreign currencies.c. the Chinese government must adjust the supply of the yuan in world markets.d. at least one foreign country must also maintain a pegged exchange rate.e. no other country that China shares a geographical border with can maintain a pegged exchange rate.____ 46. If the theory of purchasing power parity holds, then how much does an Egyptian tapestry cost in the United States if the same tapestry sells for 15,000 Egyptian pounds in Egypt and the exchange rate is $0.14 perEgyptian pound?a. $12,000b. $2,100c. $107,143d. $15,000e. $3,148____ 47. Suppose that sugar produced in Cuba sells for a lower price in Mexico than it does in the United States. What is the most likely reason for the difference in prices in the two locations?a. The United States has more stringent trade restrictions on Cuba than Mexico.b. Shipping the sugar to the United States is more expensive than shipping it to Mexico.c. The sugar sold in Mexico is different from the sugar sold in the United States.d. Americans prefer high fructose corn syrup, whereas Mexicans prefer sugar.e. Mexico has a closer political relationship with Cuba, and so Mexico receives a discount on the sugar compared to the price charged the United States.____ 48. Which of the following would be entered into the U.S. capital account?

a. champagne purchased from France to celebrate your college graduationb. a share of Google stock purchased by a U.S. citizenc. a vacation home in Mexico purchased by a U.S. citizend. a Ford Escape vehicle manufactured in the United States and purchased by a U.S. citizene. technical support received from a call center in India____ 49. Suppose a Chinese citizen buys a box of Nestlé Kit Kat candy bars from America and Nestlé decides to hold on to the Chinese currency. How will this transaction enter into the U.S. balance of payments?a. as an increase in current account, as a decrease in capital accountb. as a decrease in current account, as an increase in capital accountc. as an increase in current account, as an increase in capital accountd. as a decrease in current account, as a decrease in capital accounte. There will be no net change in current account or capital account.____ 50. Suppose the United States experiences an increase in its trade deficit. Which of the following is a possible explanation for this growing trade deficit? There has been:a. a decrease in U.S. interest rates.b. an increase in the U.S. savings rate.c. an economic expansion in the United States.d. a decrease in the U.S. budget deficit.e. an increase in foreign interest rates.

The federal government started running a budget surplus in 1998. By 2002, the budget surplus had turned into a budget deficit. Why do you think the budget deficit returned in 2002?Are demographics an important factor when planning the federal budget?Some proponents of entitlement-program reform suggest indexing Social Security benefits to the consumer price index (CPI):Mandatory outlays are different than discretionary outlays because:Due to ____________, government outlays have risen quickly since 2000.The funds used for payments to Medicare recipients come primarily from:In recent years, the growth in foreign-owned debt has:The federal budget deficit has grown so quickly in the past 5-10 years because of:Budget deficits tend to:According to the U.S. Federal Tax Rates chart from the textbook (Figure 15.6), a person earning $100,000 in a given year is in the 28% tax bracket. How much will this individual owe in taxes for that year?Excise taxes are levied on:If policymakers are concerned about the unequal distribution of income within society, then they should prefer a:The middle 20% of households in the United States:____________ a government-administered retirement program.Over the next 20 years, the number of workers per Social Security beneficiary is predicted to be:According to the textbook, the country with the highest debt-to-GDP (gross domestic product) ratio in the world, in terms of publicly held debt, is:According to the table, the country with the lowest average yearly budget deficit over the time period as a percentage of the yearly increase in GDP is:Which country holds the most U.S. debt?A progressive income tax system is one in which:

Which federal budget category's portion of total government outlays has decreased since 1960?One proposed solution to the funding problems faced by Social Security and Medicare is to increase the retirement age from 67 to 70. Although this would mean billions of dollars in savings for these federal programs, an unintended consequence may be:The most recent federal budget surplus occurred:Payroll taxes:In 2012, revenue from corporate income taxes totaled approximately:Why was the world so concerned about Greece defaulting on its debt?Why do wealthy citizens contribute much more tax revenues to the government than poor citizens?What would happen if a country defaulted on its sovereign debt?Why is foreign government ownership of U.S. debt not currently a huge concern among many economists?Some people argue that social insurance taxes should be increased to remedy the fiscal problems faced by Social Security. What is a potential unintended consequence of this proposed solution?Reforming entitlement programs is difficult because:A U.S. federal government budget deficit occurs when:

1.Fiscal policy is:2.Monetary policy is:3.The use of the money supply to influence the economy is:4.The use of government spending and taxes to influence the economy is:5.When the economy falters, people often look to the government to help push the economy forward again. In fact, the government uses many different tools to try to affect the economy. Economists classify these tools on the basis of two different types of policy:6.Monetary policy is conducted by the Federal Reserve. Fiscal policy is:7.When the government increases spending or decreases taxes to stimulate the economy toward expansion, the government is conducting:8.Fiscal policy includes:9.An example of expansionary fiscal policy is:10.Expansionary fiscal policy occurs when:11.If the economy begins to fall into a recession, one would expect Congress and the president to conduct:12.During which of the following situations would you advise for expansionary fiscal policy?13.Expansionary fiscal policy leads to:14.During recessionary periods:15.During economic expansions:16.Contractionary fiscal policy occurs when:17.When the government decreases spending or increases taxes to slow economic expansion, the government is conducting:18.If the economy starting at full-employment output begins to enter into an expansion, one would expect Congress and the president to conduct:19.Congress and the president would conduct contractionary fiscal policy in order to:20.An increase in taxes or a decrease in spending during an economic expansion can:21.A government might want to reduce aggregate demand if it believes that:22.Countercyclical fiscal policy:23.Fiscal policy that seeks to counteract business-cycle fluctuations is:

24.Countercyclical fiscal policy consists of:25.Marginal propensity to consume is:26.The portion of additional income that is spent on consumption is:27.An initial increase in government spending of $100 billion can create more than $100 billion through what economists call:28.The spending multiplier is:29.To determine the total impact on spending from an initial change of a given amount, you could use:30.Where MPC is the marginal propensity to consume, the formula for the spending multiplier is:31.If your marginal propensity to consume is 0.75 and you get an additional $400 in income, you would spend ___________ on consumption.32.If your income increases by $1,500 and you only consume $900 of it, your marginal propensity to consume would be equal to:33.If the marginal propensity to consume is equal to 0.75, the spending multiplier is equal to:34.If the spending multiplier is 5, what is the marginal propensity to consume in the economy?35.If an initial increase in government spending of $100 billion leads to a total increase of $400 billion in income, the marginal propensity to consume in the economy is:36.An example of the multiplier effect is when:37.Three issues that arise in the application of activist fiscal policy are:38.Time lags, crowding-out, and savings shifts are all:39.Recognition lag, implementation lag, and impact lag are all examples of:40.The three time lags that accompany policy decisions are:41.An implementation lag happens because:42.An impact lag happens because:43.It is difficult to determine when the economy is turning up or down. This is because there is ___________ that delays the effects of changes in fiscal policy.44.A recognition lag happens because:45.If the effects of expansionary fiscal policy hit when the economy is already expanding:46.If the effects of contractionary fiscal policy hit when the economy is already contracting:47.If lags cause the effects of fiscal policy to be delayed for a long period of time:48.Automatic stabilizers:49.___________ is an example of an automatic stabilizer.50.___________ can eliminate recognition lags and implementation lags and thereby alleviate some concerns of destabilizing fiscal policy.51.Progressive tax rates, taxes on corporate profits, unemployment compensation, and welfare programs are all examples of:52.Automatic stabilizers try to solve the problem of:53.Crowding-out occurs when:54.Which of the following is an example of crowding-out?55.The assertion that increases in government spending and decreases in taxes are largely offset by increases in savings is called:56.Depending on how fiscal policy is implemented, it can affect:57.Typical fiscal policy focuses squarely on:58.Supply-side fiscal policy explains how taxes and government spending can affect:59.Supply-side fiscal policy involves the use of:

For country A, an export is a good produced in:

For country A, an import is a good produced in:Total world exports of goods and services are now _______ about the size of world gross domestic product (GDP)An economy that does not trade with the rest of the world is a(n):If St. John has a closed economy, it ________ with other countriesIf Hong Kong has an open economy, it _________ with other countriesFree trade is __________, because it _________ the size of the pie available to the economyThe ability of one person or nation to produce more of a good while using the same quantity of resources as another is called a(n):Florida's nice beaches and subtropical climate give the state ________ in tourism"A" has a comparative advantage over "B" in producing a good if:A rich nation will trade with a poor nation (and vice versa) because the:A society could achieve a higher level of productivity if:In general, a nation can enjoy a higher standard of living by ___________ than by being self-sufficientWhile comparative advantage is the biggest reason many nations engage in trade, two other important reasons are:The World Trade Organization (WTO):Bans on imports, import quotas, voluntary quotas, and tariffs on goods:A tax on imports is known as a(n):A tariff is a tax imposed on ________ goodThere is a 5% average tax on imported goods in the United States. This tax is known as a(n):Assume there is a 35% tariff on bananas imported in the US. Also, assume that the market competition is at its beginning and the law of one price is not in effect. If the domestic market price of Hawaiian bananas is one dollar per bunch, imported bananas will sell for:An example of a voluntary quota is:Which of the following situations will arise in the domestic market following the imposition of an import quota?The Great Recession was similar to other recessions since World War II in that:The Great Recession was different from other recessions since World War II in that:During the Great Recession, a major financial crisis followed the collapse of housing prices, which led to:During the Great Recession, the U.S. _______ curve shift to the _________During the Great Recession, the U.S. aggregate demand curve shifted to the left, in part, because:During the Great Recession, the U.S. long-run aggregate supply curve shifted to the left, in part, because:An institutional breakdown in U.S. financial markets would tend to cause:Which of the following best summarizes the main causes of the Great Depression?During the Great Depression, the U.S. aggregate demand curve shifted to the left, in part, because:According to classical economists, changes in aggregate demand have little effect on the overall economy, and therefore:Classical economists believe that government intervention in the economy is unnecessary because:A graph shows a decrease in the price level due to a decrease in aggregate demand. Real GDP, however, does not change. The best explanation for the events is that:If a Keynesian economist were asked to make a statement about the relationship between the government and the economy, what might he say?

Based on the belief that prices are sticky and inflexible, Keynesian economists conclude that:Which of the following economic statements would a Keynesian economists tend to support?A budget is:Should average citizens be concerned with the government's budget?Which of the following is considered mandatory government spending?a) funding the Environmental Protection Agencyb) payments to active military personnelc) infrastructure maintenance spendingd) international aid to poor countriese) payments to social security recipientsAre demographics an important factor when planning the federal budget?Why do Social Security and Medicare pose problems for the federal government budget?Which of the following is an example of something that contains an excise tax?a) propertyb) incomec) clothing made and sold in Oregon (where the sales tax rate is 0%)d) clothing imported from China and sold in Oregone) tobacco productsPayroll taxes:The wealthiest 20% of households in the United States:A U.S. federal government budget deficit occurs when:During the Great Recession, government outlays were _______ and government revenues were ________ their long-run averages over the period of 1960-2012The U.S. government could reduce its budget deficit by:a) borrowing funds from abroadb) raising the eligible retirement age to receive social security benefitsc) expanding the income assistance programsd) lowering income ratese) decreasing the level of means-testing for medicare eligibilityWhy is a budget deficit not necessarily a bad thing?Budget deficits tend to:a) increase during expansionsb) increase during warsc) decrease during recessionsd) increase over timee) decrease over timeIf government revenues in 2011 were $2.2 trillion and government outlays were $3.8 trillion:If government revenues in 2000 were $2.0 trillion and government outlays were $1.8 trillion, this means that:Why does the federal debt tend to increase during periods of recession?Monetary Policy is:When the economy falters, people often look to the government to help push the economy forward again. In fact, the government uses many different tools to try to affect the economy. Economists classify these tools on the basis of two different types of policy:An example of fiscal policy is:a) lowering taxesb) increasing taxes on everyone in the economyc) decreasing the number of weeks an individual can receive unemployment

d) increasing taxes only on the top earnings in the economye) increasing minimum wageExpansionary fiscal policy occurs when:If the economy begins to fall into a recession, one would expect Congress and the president to conduct:Assume that the government is currently balancing the national debt so they outlays equal tax revenue. Then the economy slips into recession, and the government decides to increase government spending by $50 billion. The government must pay for this by borrowing: it must sell $50 billion worth of Treasury bonds. As a result:When aggregate demand is high enough to drive unemployment below the natural rate:Countercyclical fiscal policy consists of:The spending multiplier is:If your marginal propensity to consume is 0.75 and you get an additional $400 in income, you would spend __________ on consumptionAn example of the multiplier effect is when:a) the gov increases gov spending initially by $100 billion, and total income increases by less than $100 billionb) an increase in the price level leads to shift in the aggregate demand curvec) the gov increases gov spending initially by $100 billion, and total income increases by more than $100 billiond) an increase in gov spending leads to a decrease is private investmente) short-run aggregate supply shifts in a response to fiscal policyThe three time lags that accompany policy decisions are:An implementation lag happens because:An impact lag happens because:A recognition lag happens because:If the effect of contractionary fiscal policy hit when the economy is already contracting:Progressive tax rates, taxes on corporate profits, unemployment compensation, and welfare programs are all examples of:The "crowding-out" critique is based on the idea that:If current savings increase the same amount as the federal stimulus:Supply-side fiscal policy involves the use of:Long-run aggregate supply shifts are caused by:Supply-side fiscal policy:a) has been proven not to workb) takes time to affect aggregate supplyc) has immediate effects on aggregate supplyd) includes increases in government employee's pay and individual tax breakse) is emphasized as a short-run solution to growth problemsWhat does the X axis and Y axis of the Laffer curve represent?Money does NOT function as:a) a unit of accountb) a medium of exchangec) a means to buy goods and servicesd) an item to bartere) a store of valueFor something to be considered money, it must:A major advantage of money over barter is that it is: a) a medium of exchangeb) fiat moneyc) a unit of account

d) a store of valuee) currencyMoney eliminated the need for the double coincidence of wants through its role as:What function of money is highlighted when I am depositing a portion of my paycheck into my savings account to pay for my child's future education?If Ann were to convert some of her checkable deposits into a certificate of deposit, which of the following changes would take place?As credit card balances increase, what will be the consequence for M1 and M2?The bank in your hometown has decided to double the number of its local branch offices. How will this affect the bank's balance sheet?The Coppock Bank began the day with $10,000,000 in its reserve account and ended the day with the same amount. If loans, other assets, and Treasury securities were $3,000,000 and owner's equity was $2,000,000, what is the bank's total amount of assets?Which of the following would NOT be an asset for a commercial bank?a) loansb) cash in the vaultc) borrowingsd) deposits at the federal reservee) u.s. treasury securities_________ is/are considered a liability on a bank's balance sheeta) cash in the vaultb) u.s. treasury securitiesc) property owned by the bankd) depositse) loansIf a bank has a required reserve ratio of 15% and has required reserves of $225,000,000, how much does the bank hold in depositsWhat are federal funds?To increase the money supply, the Federal Reserve could do which of the following?a) increase the discount rateb) increase the RR ratioc) conduct an open market sale of u.s. treasury securitiesd) discourage banks from lending money to borrowerse) conduct an open market purchase of u.s. treasury securitiesCentral banks can use monetary policy to:a) reduce interest ratesb) decrease taxesc) increase government spendingd) steer the economy out of every recessione) prevent recessions______________ is when a central bank acts to increase the money supply in an effort to stimulate the economyHolding all else constant, in the short run, an increase in the money supply can cause:Injecting new money into the economy eventually causes:As the prices of goods and services increase, the value of money:Changes in the quantity of money lead to real changes in the economy. If this is the case, why would the central bank every stop increasing the money supply?Expansionary monetary policy can have immediate real short-run effects; initially, no prices have adjusted. But as prices adjust in the long run:___________ is when a central bank acts to decrease the money supply in an effort to control an economy that is expanding too quickly

Contractionary monetary policy: (effect on aggregate demand)During a financial crisis hit hard by bank failures, the money supply:Expectations:a) have no effect on monetary policyb) have no effect on consumers' spending habitsc) play a role in fiscal policy but not in monetary policyd) can dampen the effects of monetary policy e) are easily studied in economicsThe idea that the money supply does not affect real economic variables is called:The traditional short-run Philips curve implies that:The long-run Philips curve is:a) upward slopingb) downward slopingc) horizontald) verticale) U-shapedAdaptive Expectations Theory:According to adaptive expectations theory, when inflation decelerates:a) people underestimate inflationb) people correctly estimate inflationc) people change to rational expectationsd) unemployment must decreasee) people overestimate inflation______________ holds that people form expectations on the basis of all available informationThe strategic use of monetary policy to counteract macroeconomic expansions and contractions is known as:Passive monetary policy is:

The federal government started running a budget surplus in 1998. By 2002, the budget surplus had turned into a budget deficit. Why do you think the budget deficit returned in 2002?Are demographics an important factor when planning the federal budget?Some proponents of entitlement-program reform suggest indexing Social Security benefits to the consumer price index (CPI):Mandatory outlays are different than discretionary outlays because:Due to ____________, government outlays have risen quickly since 2000.The funds used for payments to Medicare recipients come primarily from:In recent years, the growth in foreign-owned debt has:The federal budget deficit has grown so quickly in the past 5-10 years because of:Budget deficits tend to:According to the U.S. Federal Tax Rates chart from the textbook (Figure 15.6), a person earning $100,000 in a given year is in the 28% tax bracket. How much will this individual owe in taxes for that year?Excise taxes are levied on:If policymakers are concerned about the unequal distribution of income within society, then they should prefer a:The middle 20% of households in the United States:____________ a government-administered retirement program.

Over the next 20 years, the number of workers per Social Security beneficiary is predicted to be:According to the textbook, the country with the highest debt-to-GDP (gross domestic product) ratio in the world, in terms of publicly held debt, is:According to the table, the country with the lowest average yearly budget deficit over the time period as a percentage of the yearly increase in GDP is:Which country holds the most U.S. debt?A progressive income tax system is one in which:Which federal budget category's portion of total government outlays has decreased since 1960?One proposed solution to the funding problems faced by Social Security and Medicare is to increase the retirement age from 67 to 70. Although this would mean billions of dollars in savings for these federal programs, an unintended consequence may be:The most recent federal budget surplus occurred:Payroll taxes:In 2012, revenue from corporate income taxes totaled approximately:Why was the world so concerned about Greece defaulting on its debt?Why do wealthy citizens contribute much more tax revenues to the government than poor citizens?What would happen if a country defaulted on its sovereign debt?Why is foreign government ownership of U.S. debt not currently a huge concern among many economists?Some people argue that social insurance taxes should be increased to remedy the fiscal problems faced by Social Security. What is a potential unintended consequence of this proposed solution?Reforming entitlement programs is difficult because:A U.S. federal government budget deficit occurs when: