1.The government's use of fiscal policy to reign in inflation or stimulate a recession is accomplished by changing either ______ or _______.

Money supply or interest rates

Government spending or taxes

Interest rates or government spending

Taxes or the money supply

2.Mainstream economists believe that the economy is not always self-correcting and requires government intervention to either stimulate the economy out of a recession or reign in inflation. Which is an example of expansionary fiscal policy?

Additional government spending

Increasing taxes

Decreasing interest rates

Increasing the money supply

3.The government often implements a change within the tax rate to either stimulate an economic downturn or curb inflation. What component in the GDP growth equation is directly effected by a tax cut (fiscal stimulus)?

Consumption (C)

Investment (I)

Only government spending is affected (G)

Net exports (X - M)

4.The formula for the unemployment rate is

One divided by the consumption rate

Number or unemployed people divided by labor force

One divided by the reserve ratio

Number of employed people divided by total population

5.The Classical economists believed that:

The economy is self-correcting

The economy needs fiscal or monetary stimulus to recover from a recession

The economic cycle depends on the phases of the moon

The 56 Chevy is the best classic car ever built

6.No two recessionary patterns are alike. A V-shaped recessionary dip in the business cycle indicates a ______. A U-shaped dip signals a ______.

Short recovery before entering a second recession; Recession that can last for years at a time with little change

Short and deep recession; Shallow or deep recession that lasts longer than usual

7.Consumer theory, production theory, and market price equilibrium are all areas of analysis in

Macroeconomics

Microeconomics

8.Microeconomics deals with the much larger picture of how national economies and the broader global economy perform. In contrast, macroeconomics deals with the individual markets and consumers that make up the economy.

True

False

9.Supply side economics promises to:

Lower taxes to lower the budget deficit

Raise taxes to lower the budget deficit

Lower taxes to increase the budget deficit

Raise taxes to increase the budget deficit

10.The difference between actual and potential GDP is known as ______. It measures the total ouptut an economy sacrifices when it does not use its resources efficiently and to its full productive potential.

An inflationary gap

A recessionary gap

Opportunity cost

11.An adjustable rate mortgage would only prove advantageous over a fixed rate mortgage if

The fixed rate mortgage was higher

The inflation rate rose

The inflation rate remained stable

The fixed rate mortgage was lowered

12.A flatter long-term growth trend line signals a

Constant growth in real GDP over time

Rapid growth in nominal GDP

Slower growth in real GDP

13. If the government wants to use fiscal policy to stimulate the economy, it will:

Increase government spending and cut taxes

Increase government spending and increase taxes

Cut government spending and raise taxes

Cut government spending and cut taxes

14.Which type of inflation index measures changes in the cost of important raw materials?

The PPI

The CPI

The FBI

15.If actual output is above potential output, we run the risk of:

Inflation

Recession

Stagflation

Armageddon