Econ- MCQs. Fiscal Policy
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____ 1. Other things the same, automatic stabilizers tend to
a. lower expenditures during expansions and recessions.
b. raise expenditures during recessions and lower expenditures during expansions.
c. raise expenditures during expansions and recessions.
d. raise expenditures during expansions and lower expenditures during recessions.
____ 2. Other things the same, a fall in the economy’s overall level of prices tends to
a. lower the quantity demanded of goods and services, but raise the quantity supplied.
b. lower both the quantity demanded and the quantity supplied of goods and services.
c. raise both the quantity demanded and supplied of goods and services.
d. raise the quantity demanded of goods and services, but lower the quantity supplied.
____ 3. When the dollar appreciates, U.S.
a. exports and imports decrease.
b. exports and imports increase.
c. exports decrease, while imports increase.
d. exports increase, while imports decrease.
____ 4. The wealth effect, interest rate effect, and exchange rate effect are all explanations for
a. the slope of the aggregate demand curve.
b. everything that makes the aggregate demand curve shift.
c. the slope of short-run aggregate supply.
d. the slope of long-run aggregate supply.
____ 5. In the short run an increase in government expenditures
a. raises neither real GDP nor the price level.
b. raises the price level, but not real GDP.
c. raises real GDP, but not the price level.
d. raises real GDP and the price level.
____ 6. Tax cuts
a. and increases in government expenditures shift aggregate demand right.
b. shift aggregate demand right while increases in government expenditures shift aggregate demand left.
c. shift aggregate demand left while increases in government expenditures shift aggregate demand right.
d. and increases in government expenditures shift aggregate demand left.
____ 7. Which of the following correctly explains the crowding-out effect?
a. An increase in government expenditures increases the interest rate and so reduces investment spending.
b. A decrease in government expenditures decreases the interest rate and so reduces investment spending.
c. A decrease in government expenditures increases the interest rate and so increases investment spending.
d. An increase in government expenditures decreases the interest rate and so increases investment spending.
____ 8. Other things the same, when the price level falls, interest rates
a. rise, so firms decrease investment.
b. rise, so firms increase investment.
c. fall, so firms increase investment.
d. fall, so firms decrease investment.
____ 9. Which of the following tends to make aggregate demand shift right farther than the amount government expenditures increase?
a. the wealth effect
b. the interest-rate effect
c. the crowding-out effect
d. the multiplier effect
____ 10. Most economists use the aggregate demand and aggregate supply model primarily to analyze
a. short-run fluctuations in the economy.
b. productivity and economic growth.
c. the effects of macroeconomic policy on the prices of individual goods.
d. the long-run effects of international trade policies.
____ 11. Other things the same, an increase in the price level makes consumers feel
a. less wealthy, so the quantity of goods and services demanded rises.
b. more wealthy, so the quantity of goods and services demanded falls.
c. less wealthy, so the quantity of goods and services demanded falls.
d. more wealthy, so the quantity of goods and services demanded rises.
____ 12. Which of the following items is counted as part of government purchases?
a. The state of Nevada pays a private firm to repair a Nevada state highway.
b. The federal government pays the salary of a Navy officer.
c. The city of Las Vegas, Nevada pays a private firm to collect garbage in that city.
d. All of the above are correct.
____ 13. Which of the following would cause prices to fall and output to rise in the short run?
a. Short-run aggregate supply shifts left.
b. Short-run aggregate supply shifts right.
c. Aggregate demand shifts right.
d. Aggregate demand shifts left.
____ 14. If households view a tax cut as temporary, the tax cut
a. has no affect on aggregate demand.
b. has more of an affect on aggregate demand than if households view it as permanent.
c. has less of an affect on aggregate demand than if households view it as permanent.
d. has the same affect as when households view the cut as permanent.
____ 15. The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. This type of effect on spending illustrates
a. the Fisher effect.
b. the crowding-out effect.
c. the multiplier effect.
d. None of the above is correct.
____ 16. The aggregate demand curve
a. has a slope that is explained in the same way as the slope of the demand curve for a particular product.
b. shows an inverse relation between the price level and the quantity of all goods and services demanded.
c. is vertical in the long run.
d. All of the above are correct.
____ 17. Fiscal policy refers to the idea that aggregate demand is changed by changes in
a. trade policy.
b. the money supply.
c. government spending and taxes.
d. All of the above are correct.
____ 18. The government purchases multiplier is defined as
a. (1 – MPC)/MPC.
b. 1/MPC.
c. 1/(1 – MPC).
d. MPC/(1 – MPC).
____ 19. The aggregate supply curve is upward sloping in
a. the long run, but not the short run.
b. neither the short nor long run.
c. the short and long run.
d. the short run, but not the long run.
____ 20. Fiscal policy affects the economy
a. in both the short and long run.
b. in neither the short nor long run.
c. only in the long run.
d. only in the short run.
____ 21. After the terrorist attacks on September 11, 2001, governments within the United States raised expenditures to increase security at airports. These purchases of goods and services are
a. not included in GDP since the government will have to raise taxes to pay for them.
b. not included in GDP since they do not represent production.
c. included in GDP since government expenditures are included in GDP.
d. included in GDP only to the extent that the federal government, rather than state or local governments, paid for them.
____ 22. Most economists believe that fiscal policy
a. primarily effects aggregate supply.
b. only affects aggregate supply and not aggregate demand.
c. primarily affects aggregate demand.
d. only affects aggregate demand and not aggregate supply.
____ 23. As the price level rises
a. people will want to buy fewer bonds, so the interest rate falls.
b. people will want to buy fewer bonds, so the interest rate rises.
c. people will want to buy more bonds, so the interest rate falls.
d. people will want to buy more bonds, so the interest rate rises.
____ 24. During recessions, automatic stabilizers tend to make the government’s budget
a. move toward surplus.
b. move toward deficit.
c. move toward balance.
d. not necessarily move the budget in any particular direction.
