1. Which one of the following statements about fiscal policy is correct?
A. Fiscal policy refers to the altering of the interest rate to change aggregate demand.
B. Fiscal policy refers to the manipulation of government spending and taxes to stabilize domestic output, employment, and theprice level.
C. Fiscal policy refers to the fact that equal increases in government spending and taxation will be contractionary.
D. Fiscal policy refers to the manipulation of government spending and taxes to achieve greater equality in the distribution ofincome.

2. Which one of the following statements about the standardized budget is correct?
A. The standardized budget tells us the actual budget deficit or surplus realized in any given year.
B. The standardized budget tells us that in a full-employment economy the federal budget should be in balance.
C. The standardized budget tells us that tax revenues should vary inversely with GDP.
D. The standardized budget tells us what the size of the federal budget deficit or surplus would be if the economy was at fullemployment.

3. An economist who favors smaller government would recommend _______ during recession and
_______ during inflation.
A. increases in government spending; tax increases
B. tax cuts; reductions in government spending
C. tax cuts; tax increases
D. tax increases; tax cuts
4. In the aggregate expenditures model, it's assumed that investment
A. doesn't change when real GDP changes.
B. doesn't respond to changes in interest rates.
C. automatically changes in response to changes in real GDP.
D. changes by less in percentage terms than changes in real GDP.

5. Which one of the following statements about dissaving is correct?
A. Dissaving occurs where saving exceeds income.
B. Dissaving occurs where saving exceeds consumption.
C. Dissaving occurs where income exceeds consumption.
D. Dissaving occurs where consumption exceeds income.

6. Imports have the same effect on the current size of GDP as
A. consumption.
B. exports.
C. saving.
D. investment.

7. Investment spending in the United States tends to be unstable because
A. investment spending is affected by interest rates.
B. profits are highly variable.
C. capital wears out quickly and must be replaced often.
D. the price level fluctuates rapidly.

8. If the price level increases in the United States relative to foreign countries, then American consumerwill purchase more foreign goods and fewer U.S. goods. This statement describes the _______ effect.
A. real-balances
B. foreign purchases
C. output
D. shift-of-spending

9. If a nation imposes tariffs and quotas on foreign products, the immediate effect will be to
A. increase domestic output and employment.
B. increase efficiency in the world economy.
C. reduce the rate of domestic inflation.
D. reduce domestic output and employment.

10. The fear of unwanted price wars may explain why many firms are reluctant to
A. reduce wages when a decline in aggregate demand occurs.
B. provide wage increases when labor productivity rises.
C. expand production capacity when an increase in aggregate demand occurs.
D. reduce prices when a decline in aggregate demand occurs.

11. An appropriate fiscal policy for severe demand-pull inflation is
A. an increase in government spending.
B. depreciation of the dollar.
C. a tax rate increase.
D. a reduction in interest rates.

12. The group of three economists appointed by the President to provide fiscal policy recommendations is the
A. Bureau of Economic Analysis.
B. Federal Reserve Board of Governors.
C. Joint Economic Committee.
D. Council of Economic Advisers.

13. Which one of the following is the best example of public investment?
A. Government expenditures on food stamps
B. Funding of regulatory agencies
C. Salaries of Senators and Representatives
D. Construction of highways

14. Contractionary fiscal policy is so named because it
A. is aimed at reducing aggregate demand and thus achieving price stability.
B. is expressly designed to contract real GDP.
C. involves a contraction of the nation's money supply.
D. necessarily reduces the size of government.

15. Which one of the following statements about discretionary fiscal policy is correct?
A. Discretionary fiscal policy refers to the authority that the President has to change personal income tax rates.
B. Discretionary fiscal policy refers to any change in government spending or taxes that destabilizes the economy.
C. Discretionary fiscal policy refers to the changes in taxes and transfers that occur as GDP changes.
D. Discretionary fiscal policy refers to changes in taxes and government expenditures made by Congress to stabilize the
economy.

16. Which one of the following statements about lump-sum taxes is correct?
A. A lump-sum tax means that the tax applies only to one time period.
B. A lump-sum tax means that the same amount of tax revenue is collected at each level of GDP.
C. A lump-sum tax means that tax revenues vary directly with GDP.
D. A lump-sum tax means that tax revenues vary inversely with GDP.

17. Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is
A. 80 percent.
B. 8 percent.
C. 2 percent.
D. 20 percent.

18. Which one of the following statements correctly describes the multiplier effect?
A. The multiplier effect means that a decline in the MPC can cause GDP to rise by several times that amount.
B. The multiplier effect means that consumption is typically several times as large as saving.
C. The multiplier effect means that an increase in investment can cause GDP to change by a larger amount.
D. The multiplier effect means that a change in consumption can cause a larger increase in investment.

19. Exports have the same effect on the current size of GDP as
A. imports.
End of exam
B. investment.
C. taxes.
D. saving.

20. An economist who favored expanded government would recommend
A. increases in government spending during recession and tax increases during inflation.
B. tax increases during recession and tax cuts during inflation.
C. tax cuts during recession and tax increases during inflation.
D. tax cuts during recession and reductions in government spending during inflation.