Question

1. Which government activity is not an example of fiscal policy( TAXATION & SPENDING)?

a) Collecting unemployment insurance taxes

b) Collecting gasoline taxes

c) Providing solar energy subsidies

d) Buying missiles from defense contractors

e) Regulating natural monopolies

2. Confidence in Keynesian economics:

            a) Diminished in the 1960’s as inflation recurred.

            b) Diminished in the 1960’s as inflation occurred simultaneously with two recessions.

            c) Diminished in the 1960’s as unemployment recurred.

            d) Diminished in the 1970’s with “stagflation”

            e) Flourished through the 1980’s.

3. A change in income will
            a) Affect demand and supply the same.

            b) Affect quantity supplied through the income effect shift supply curve.

            c) Shift the demand curve.

            d) Have no effect since everything is held constant along a demand curve.

            e) Have a different effect on demand depending on equilibrium price.

4. The division of labor refers to:

            a) Having each worker or firm specialize in a separate task.

            b) Separating workers by race.

            c) Letting everyone share in a specific task.

            d) Letting each worker make a separate product from start to finish.

            e) Separating management from workers.

5. A price ceiling imposed by the government result in an:

            a) Excess demand at equilibrium price.

            b) Excess demand at the price ceiling.

            c) Excess supply at the price ceiling.

            d) Excess supply at equilibrium price.

            e) Excess demand at a price above the equilibrium.

6. The circular flow of the economy is primarily used to trace the flow of:

            a) Money through the economy.

            b) Consumer spending through the economy.

            c) Goods through the economy.

            d) Resources, production, and money through the economy.

            e) Resources through the production process.

7. If the price level is above the equilibrium level:

            a) The resulting excess demand will force the price level down.

            b) The resulting excess demand will force the price level up.

            c) The resulting excess supply will force the price level up.

            d) The resulting excess supply will force the price level down.

            e) The resulting unemployment will force the price level up.

8. A “laissez-faire” approach to the macroeconomy before the Great Depression influences our government to:

            a) See business downturns as a “serious malady” in a “healthy” system, and therefore take only short-term deficit spending measures to help recovery.

            b) See business downturns as a “serious malady” to an otherwise “healthy system,” and therefore wait for recovery to occur naturally.

            c) See business downturns as a “serious malady” to an otherwise “healthy system,” and therefore work to redesign the system to avoid such failure in the future.

            d) See business downturns as a failure of the type of system Adam Smith envisaged, and thus move toward a modern, more managed economy.

            e) See business downturns as a failure of the current system to be the type that Adam Smith envisaged, and thus move toward less government interference in the macro economy

9. Keynes believed that the Great Depression was caused by:

            a) Unemployment.

            b) Deficit spending by the government.

            c) The tax increases put through by President Herbert Hoover.

            d) The policies of “demand-style” economies.

            e) A fall in aggregate demand.

10. Keynes believed that the best method for ending the Great Depression would be to:

            a) Increase the money supply so that individuals would have more to spend.

            b) Cut government spending and increase taxes to reduce.

            c) Increase government spending and cut taxes so that consumers would spend more.

            d) Cut both government spending and taxes so that government would not be such a large     part of the economy.

            e) Increase both government spending and taxes to increase the role government played     in the economy.

11. Keynes was:

            a) In favor of a federal budget deficit to cure an inflation.

            b) Opposed to a federal budget surplus to cure an inflation.

            c) In favor of a federal budget deficit to cure a recession.

            d) In favor of a federal budget deficit regardless of the state of the economy.

12. Proponents of monetarism:

            a) Feel that fiscal policy of worthless.

            b) View government spending as the most important public policy tool.

            c) View taxation as the most important public policy tool.

            d) Support Keynesian economics.

            e) View the money supply as the most important public policy tool.

13. The word “stagflation” describes a situation in which:

            a) Inflation is stagnated.

            b) Inflation increases with economic growth.

            c) Inflation and unemployment occur at the same time.

            d) Inflation is low enough to grow economic growth.

            e) Inflation is zero.

14. The main difference between economic change before 1970 and after 1970 is that before 1970:

            a) Most macroeconomic instability was caused by simultaneous shifts in aggregate demand and aggregate supply.

            b) Most macroeconomic instability was caused by shifts in aggregate supply.

            c) Most macroeconomic instability was caused by shifts in aggregate demand.

            d) The government assumed no direct responsibility for the level of employment.

            e) The government itself was a much less important player in the macroeconomy.

15. The labor force consists of:

            a) All the people in the economy.

            b) All the people in the economy over 16 years of age.

            c) All the adults in the economy able to work.

            d) All the adults in the economy who hold jobs or are looking for them.

            e) All the adults in the economy qualified to hold a job.

16. Consider an economy with 100 people, 70 of whom hold jobs and 10 of whom are looking. The number of people in the labor force is:

            a) 100

            b) 30

            c) 10

            d) 80

            e) 70

17. Consider an economy with 100 people, 70 of whom hold jobs and 10 of whom are looking. The rate of unemployment is:

            a) 10 percent.

            b) 12.5 percent.

            c) 14.3 percent.

            d) 20 percent.

18. The labor force participation rate for women in the United States has

            a) Stayed the same over the last 30 years      

            b) Increased significantly since the 1950s     

            c) Been influenced by decreasing real wages since 1960     

            d) Trended substantially downward since the 1950s

            e) Increased only very slightly since the 1950s

Answer 1

Answer to the question no. 1:

Option d: Buying missiles from defense contractors.

Explanation: Buying missile does not fall under the fiscal policy. Fiscal policies are the government policy which are meant to control the business fluctuations of the economy. But the purchaing of missile is not a part of the fiscal policy since it is a strategic purchase. It will not affect the income and output of the common masses.

Answer to the question no. 2:

Option d: Diminished in the 1970’s with “stagflation”.

Explanation: The keynesian economics is based on the demand management policies. During 1930s when the Aggregate demand fall, keynes suggested the measures some demand management polices to raise the aggregate demand. But during 1970s stagflation the demand management policies were not working since raisng the aggregate demand will cause more inflation in the economy.

Answer to the question no. 3:

Option c: Shift the demand curve.

Explanation: The increase in the income raises the real income of the consumer keeping the prices of the goods fixed. This will cause the demand of the consume to increase. An increase in the demand always shift the demand curve to the right.

Answer to the question no. 4:

Option a: Having each worker or firm specialize in a separate task.

Explanation: This will let all the workers or the firm to specialise in a particular area. This will lead that firm or the worker to work more efficiently in that area and also this will save time and money and thus the productivity will increase.

Answer to the question no. 5:

Option b: Excess demand at the price-ceiling.

Explanation: The price ceilling is a governmnet measure which let the firms to charge less than the equilibrium price. This will lead to the decline in supply. Since, the price is less than the equilibrium price, more of the people will tend to demand the good. This will cause the quantity demanded to increase. And the supply fall short of the demand and thus the excess demand arises at the price ceilling.

Answer to the question no. 6:

Option d: Resources, production, and money through the economy.

Explanation: The circular flow model (2x2) tries to find out the flow of resources from household to firm and flow of money from firm to household in the input market. On the other hand, in the goodds market it studies the flow of money from household to firms and goods from firms to household.

Answer to the question no. 7:

Option d: The resulting excess supply will force the price level down.

Explanation: When the price is above the equilibrium price the supply becomes greater than the demand. This excess supply will force the producer to reduce the price so as to raise the demand and sell the excess quantity.

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