Econ Chapter 11

Question 1

When the federal government is running a budget surplus,
a. government revenues exceed government expenditures
b. government expenditures exceed government revenues
c. the economy must be in a recession
d. additional government borrowing will decrease the size of the national debt

Answer 1

a.

Question 2

If a fiscal policy change is going to exert a stabilizing impact on the economy, it must
a. be expansionary
b. be restrictive
c. be timed correctly
d. keep the federal budget in balance

Answer 2

c.

Question 3

Automatic stabilizers are government programs that tend to
a. reduce the ups and downs in AD without legislative action
b. bring expenditures and revenues automatically into balance without legislative action
c. signal to Congress that legislative changes are needed
d. increase tax collections automatically during a recession

Answer 3

a.

Question 4

When the economy enters a recession, automatic stabilizers create,
a. higher taxes
b. more discretionary spending
c. larger budget deficits
d. larger budget surpluses

Answer 4

c.

Question 5

Keynesian analysis suggests that if planned spending (AD) were $700 billion but GDP was $800 billion
a. businesses would accumulate inventories and output would fall
b. output would rise, income would rise, and tax revenues would automatically increase
c. production would be stimulated, and output would increase unless the full-capacity output was less than $950 billion
d. the Federal Reserve would eventually lower interest rates.

Answer 5

a.

Question 6

In the Keynesian aggregate expenditure model, the equilibrium level of income is achieved when
a. the employment rate equals approximately 96%
b. actual saving equals actual investment
c. planned aggregate expenditures exceed actual output
d. actual output equals planned aggregate expenditures

Answer 6

d.

Question 7

Keynesian countercyclical budget policy suggests that
a. a budget deficit is needed if the economy is operating at less than full employment
b. a budget deficit should be planned during an inflationary boom
c. the budget must be balanced if the national debt is growing more rapidly than the economy
d. the budget should always be in balance

Answer 7

a.

Question 8

According to the Keynesian theory, which of the following would most likely stimulate an expansion in real output if the economy were in a recession?
a. an increase in tax rates
b. a balanced budget
c. a budget deficit
d. a budget surplus

Answer 8

c.

Question 9

The Keynesian macroeconomic view was highly popular for several decades following WWII because it provided an explanation for
a. the strong economic recovery following the end of the war
b. the high inflation rates of the 1950s
c. the prolonged unemployment of the 1930s
d. the high rate of investment during the Great Depression

Answer 9

c.

Question 10

John Maynard Keynes and his followers argued that the Great Depression was primarily the result of
a. excessive government spending
b. large budget deficits
c. the perverse monetary policies of the Fed.
d. insufficient aggregate spending on goods and services

Answer 10

d.

Question 11

If output is less than full employment in the Keynesian view, what is needed to restore full employment?
a. an increase in the price level
b. an increase in AD
c. a reduction in government expenditures
d. an increase in aggregate supply

Answer 11

b.

Question 12

According to the Keynesian view, if policy makers thought the economy was about to fall into a recession, which of the following would be most appropriate?
a. a reduction in government expenditures
b. an increase in government expenditures or reduction in taxes, financed by borrowing
c. a balanced federal budget

Answer 12

b.