Economics Final

Question 1

The last U.S. president to be in office when the government had a budget surplus was…

Answer 1

Bill Clinton.

Question 2

When tax revenues exceed the government’s outlays, the budget

Answer 2

has a surplus and the national debt is decreasing.

Question 3

What two parts of the government determine the federal budget?

Answer 3

Congress and the President

Question 4

Since 2000, the U.S. government has generally had a government budget ________ and so the national debt has ________.

Answer 4

deficit; increased

Question 5

An example of automatic fiscal policy is

Answer 5

expenditure for unemployment benefits increasing as economic growth slows.

Question 6

Needs-tested spending is defined as

Answer 6

spending on programs for people qualified to receive benefits.

Question 7

In a recession, needs-tested spending ________ and induced taxes ________.

Answer 7

increases; decrease

Question 8

Discretionary fiscal policy is a fiscal policy action, such as

Answer 8

a tax cut, initiated by an act of Congress.

Question 9

If government expenditure on goods and services increase by $10 billion, then aggregate demand

Answer 9

increases by $10 billion multiplied by the government expenditure multiplier.

Question 10

If the government reduces expenditure on goods and services by $30 billion, then aggregate demand

Answer 10

decreases by more than $30 billion and real GDP decreases.

Question 11

If a change in the tax laws leads to a $100 billion decrease in tax revenue, then aggregate demand

Answer 11

increases by more than $100 billion.

Question 12

The government expenditure multiplier and the tax multiplier are

Answer 12

different in size and the government expenditure multiplier is larger.

Question 13

The law-making time lag is best described as the time that it takes

Answer 13

Congress to pass laws needed to change taxes or spending.

Question 14

If there is a rise in the price level, there is ________ in the quantity of real GDP supplied and a movement ________ along the AS curve

Answer 14

an increase; upward

Question 15

If there is an increase in expected future income, then…

Answer 15

the aggregate demand curve shifts rightward.

Question 16

A tax cut ________ aggregate demand and ________.

Answer 16

increases; shifts the AD curve rightward

Question 17

Raising Interest Rates does what to aggregate demand?

Answer 17

Decreases aggregate demand

Question 18

If real GDP is less than potential GDP, then the ________ and the price level ________.

Answer 18

aggregate supply curve shifts rightward; falls

Question 19

Demand pull inflation can be started by

Answer 19

an increase in government expenditure. Because this increase causes a decrease in aggregate supply.

Question 20

Cost-push inflation can start with

Answer 20

A decrease in aggregate supply

Question 21

The only factor that can sustain inflation

Answer 21

Growth in the quantity of money

Question 22

When cost-push inflation starts, real GDP ________ and the unemployment rate ________.

Answer 22

decreases; rises

Question 23

M1 includes…

Answer 23

currency plus traveler’s checks plus checkable deposits.

Question 24

If Rob deposits $300 in currency into his savings account at Bank of America,

Answer 24

M1 decreases.

Question 25

If the Fed increases the discount rate…

Answer 25

commercial banks pay a higher interest rate if they borrow from the Fed.

Question 25

If the Fed increases the discount rate…

Answer 25

commercial banks pay a higher interest rate if they borrow from the Fed.

Question 26

An open market purchase of securities by the Fed leads to all of the following

Answer 26

1. An increase in bank lending
2. An initial increase in excess reserves
3. An increase in banks reserves
4. An increase in the monetary base

Question 27

If the Fed makes an open market purchase of $1 million of government securities, the monetary base

Answer 27

is increased by $1 million.

Question 28

When the Fed buys securities from the public, banks’ reserves ________ and the quantity of money ________.

Answer 28

increase; increases

Question 29

The Fed sells $300 million U.S. government securities to commercial banks. This action leads to ________ in Fed assets and ________ in Fed liabilities.

Answer 29

a $300 million decrease; a $300 million decrease in

Question 30

If the money multiplier is 3.0, a $1,000 increase in the monetary base

Answer 30

increases quantity of money by $3,000.

Question 31

Suppose the currency drain ratio is 33 percent and the desired reserve ratio is 10 percent. The money multiplier equals

Answer 31

3.09.

Question 32

Suppose the currency drain ratio is 33 percent and the desired reserve ratio is 10 percent. The money multiplier equals

Answer 32

3.09.