Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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Part 1: Main Idea
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1.
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Which would be considered an automatic stabilizer?
a. | highway spending | b. | income tax | c. | military
spending | d. | sales tax |
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2.
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Congress debates a tax cut for three months. By the time it goes into effect,
the recession is ending, and inflation results. What does this example illustrate?
a. | policy lags and political issues | b. | policy lags and timing
issues | c. | political issues and rational expectations theory | d. | political issues and
timing issues |
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3.
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Which scenario is most likely to create political issues in determining fiscal
policy?
a. | having the Senate and the House controlled by opposing parties | b. | having the Senate
controlled by a party other than the president's party | c. | having the House
controlled by a party other than the president's party | d. | having state
legislatures controlled by different parties than the U.S. Congress |
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4.
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As part of its contractionary fiscal policy, the government decides to tax raw
minerals. Before the tax takes effect, manufacturers buy minerals. The price of minerals goes up,
adding to inflation. What does this illustrate?
a. | political issues | b. | rational expectations
theory | c. | regional issues | d. | timing issues |
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5.
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What did Keynes consider the most influential part of his GDP equation;
why?
a. | consumer goods because low consumer confidence worsened the Great
Depression | b. | government goods because government spending is large part of the
economy | c. | investment because it fluctuated and was linked to the spending multiplier
effect | d. | net exports because they were related to a favorable balance of
trade |
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6.
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Which economic problem is difficult to solve by demand-side fiscal policy;
why?
a. | inflation because government spending always makes that worse | b. | poverty because the
tax rates suggested by demand-side policies favor the wealthy | c. | stagflation because
fixing inflation and fixing unemployment require opposite policies | d. | unemployment because
demand-side policies do not create jobs |
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7.
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What political issue sometimes interferes with the correct application of
demand-side fiscal policy?
a. | the need to equip the military during wartime, leading to budget
deficits | b. | the desire to fund popular programs even if the economy requires decreased
spending | c. | the call for increased government regulation by environmental
groups | d. | the lobbying by special interest groups to increase corporate income
taxes |
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8.
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Which is an example of deficit spending because of a national emergency?
a. | construction of bridges over the Mississippi | b. | supplemental
unemployment benefits | c. | cleanup of New York City after the 9/11
attacks | d. | jobs program for unemployed youth in the city |
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9.
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During the Great Depression, the Tennessee Valley Authority hired unemployed
workers to build dams in Tennessee, thus bringing electrical power to the area. What causes of
deficit spending does this example illustrate?
a. | national emergency and need for public goods and services | b. | need for public
goods and services and stabilization of the economy | c. | stabilization of the economy and role of
government in society | d. | role of government in society and national
emergency |
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10.
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Who are most of the foreign investors who hold U.S. Treasury bonds?
a. | individual investors | b. | foreign governments | c. | foreign
corporations | d. | central banks |
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11.
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When the government borrows from the Social Security trust fund, what is
happening?
a. | The government is borrowing from retirees. | b. | The government is
borrowing from working taxpayers. | c. | The government is borrowing from
itself. | d. | The government is borrowing from bondholders. |
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12.
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Which would be most upset by the news that the government increased the interest
rates on U.S. Treasury bonds?
a. | an individual about to invest in diversified mutual funds | b. | a corporation
planning to issue its own bonds in six weeks | c. | a high-ranking employee at the Office of
Management and Budget | d. | a worker who makes regular contributions to a
program to buy bonds |
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13.
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Which is the opposite of discretionary fiscal policy?
a. | automatic stabilizers | b. | contractionary fiscal
policy | c. | expansionary fiscal policy | d. | rational
expectations |
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14.
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Which might be used as part of discretionary fiscal policy?
a. | corporate income tax | b. | entitlements | c. | public works
funding | d. | unemployment compensation |
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15.
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If the government wants to slow down the economy, what action might it
take?
a. | hire workers to create a new national park | b. | offer states federal
funds for textbooks | c. | double the excise tax on sales of
gasoline | d. | lower corporate income tax rates |
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16.
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Which policy change would probably have the fastest effect on the
economy?
a. | a one-time rebate of individual income taxes | b. | a change in the
assessment formula for property taxes | c. | a government contract to purchase jets for four
years | d. | a plan to reduce government staff by not replacing
retirees |
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17.
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How did the Great Depression affect the thinking of John Maynard Keynes and
other economists?
a. | It caused them to adopt more laissez-faire policies. | b. | It caused them to
advocate reductions in government spending. | c. | It caused them to advocate higher income tax
rates. | d. | It caused them to favor government intervention in the
economy. |
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18.
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Which action is an example of demand-side fiscal policy?
a. | decreased government regulation | b. | increased government
spending | c. | incentives for new businesses | d. | wage controls to halt
inflation |
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19.
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Which action is an example of supply-side fiscal policy?
a. | income tax rebates | b. | increased government
regulation | c. | increased government spending | d. | decreased corporate tax
rates |
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20.
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Which was a positive effect of the supply-side fiscal policy of the
1980s?
a. | Interest rates for investors rose. | b. | Savings rates increased. | c. | Tax revenues
increased. | d. | Most workers worked longer hours. |
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