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macro economics


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 U.S. Inflation, Unemployment, and Business Cycle

1  Inflation Cycles

1) Which of the following can start an inflation?
A) an increase in aggregate demand
B) an increase in aggregate supply
C) a decrease in aggregate supply
D) Both answers A and C are correct.
Answer:  D

2) Inflation can be started by
A) a decrease in aggregate supply or a decrease in aggregate demand.
B) a decrease in aggregate supply or an increase in aggregate demand.
C) an increase in aggregate supply or an increase in aggregate demand.
D) an increase in aggregate supply or a decrease in aggregate demand.
Answer:  B

3) Demand-pull inflation starts with
A) an increase in aggregate demand.
B) a decrease in aggregate demand.
C) an increase in short-run aggregate supply.
D) a decrease in short-run aggregate supply.
Answer:  A

4) Demand-pull inflation is an inflation that results from an initial ________.
A) increase in aggregate demand
B) decrease in aggregate demand
C) increase in wage rates
D) increase in natural resource prices
Answer:  A

5) Demand-pull inflation starts with a shift of the
A) SAS curve rightward.
B) AD curve rightward.
C) SAS curve leftward.
D) AD curve leftward.
Answer:  B

6) Demand-pull inflation starts as the
A) LAS curve shifts leftward.
B) LAS curve shifts rightward.
C) AD curve shifts rightward.
D) AD curve shifts leftward.
Answer:  C
7) Demand-pull inflation can start when
A) money wage rates rise but the price level does not change.
B) money wage rates rise faster than prices.
C) the short-run aggregate supply curve shifts rightward.
D) the aggregate demand curve shifts rightward.
Answer:  D

8) Increases in the quantity of money can start a ________ inflation and an increase in government expenditure can start a ________ inflation.
A) demand-pull; demand-pull
B) demand-pull; cost-push
C) cost-push; cost-push
D) cost-push; demand-pull
Answer:  A

9) Which of the following is a change that would NOT start a demand-pull inflation?
A) an increase in exports
B) an increase in labor productivity
C) an increase in government expenditure on goods and services
D) an increase in the quantity of money
Answer:  B

10) Which of the following could NOT start a demand-pull inflation?
A) increases in government expenditure
B) increases in net exports
C) increases in oil prices
D) increases in the quantity of money
Answer:  C

11) Suppose the expected inflation rate is 8 percent and the unemployment rate is 3 percent. If the inflation rate rises to 10 percent and the expected inflation rate does not change,
A) the short-run Phillips curve will shift upward.
B) the short-run Phillips curve will shift downward.
C) there will be a movement along the short-run Phillips curve.
D) the natural unemployment rate will rise.
Answer:  C

12) Suppose that last year the economy of Suffera was experiencing an expected inflation rate of 8 percent and unemployment rate of 12 percent. An unexpected increase in the inflation rate would
A) increase the unemployment rate.
B) increase the inflation rate and decrease the unemployment rate.
C) increase the inflation rate but have no effect on the unemployment rate.
D) None of the above answers is correct.
Answer:  B

13) Which of the following leads to an rightward shift in the short-run Phillips curve?
I.    a reduction in the expected inflation rate
II.  an increase in the natural unemployment rate
A) I only
B) II only
C) I and II
D) neither I nor II
Answer:  B



14) An increase in the expected inflation rate shifts the
A) short-run Phillips curve downward.
B) short-run Phillips curve upward.
C) long-run Phillips curve upward.
D) long-run Phillips curve downward.
Answer:  B

15) Which of the following leads to a downward shift in the short-run Phillips curve?
A) People expected inflation to be 5 percent last year and now expect inflation to be 3 percent
this year.
B) People expect the unemployment rate to increase.
C) The long-run Phillips curve shifts rightward.
D) Unexpected inflation increases.
Answer:  A

16) Suppose the expected inflation rate is 12 percent and the unemployment rate is 5 percent. If the expected inflation rate increases to 13 percent,
A) the short-run Phillips curve will shift upward.
B) the short-run Phillips curve will shift downward.
C) there will be a movement along the short-run Phillips curve.
D) the natural unemployment rate will rise.
Answer:  A




17) In the above figure, suppose the economy is at point A. An unexpected increase in the inflation rate to 6 percent will result in a movement to point
A) A, that is, there is no movement.
B) B.
C) C.
D) D.
Answer:  B

18) In the above figure, suppose the economy is at point A. An expected increase in the inflation rate to 6 percent will result in a movement to point
A) A, that is, there is no movement.
B) B.
C) C.
D) D.
Answer:  C



19) The long-run Phillips curve shows the relationship between the inflation rate and the unemployment rate when the
A) real interest rate equals the nominal interest rate.
B) real interest rate is zero.
C) actual inflation rate equals the expected inflation rate.
D) inflation rate is zero.
Answer:  C

20) The long-run Phillips curve is
A) vertical at potential GDP.
B) the horizontal sum of the short-run Phillips curves.
C) vertical at the natural unemployment rate.
D) the vertical sum of the short-run Phillips curves.
Answer:  C

21) Along the long-run Phillips curve,
A) actual inflation is greater than expected inflation.
B) actual inflation is equal to expected inflation.
C) actual inflation is less than expected inflation.
D) None of the above answers is correct.
Answer:  B

Chapter 13  Fiscal Policy

1  The Federal Budget

1) Prior to the Great Depression, the purpose of the federal budget was to ________.
A) stabilize the economy
B) finance the activities of the government
C) maintain low interest rates
D) decrease unemployment
Answer:  B

2) The use of the U.S. federal budget to help stabilize the economy grew in reaction to the ________ and is known as ________.
A) stagflation of the 1970s; fiscal policy
B) Great Depression of the 1930s; fiscal policy
C) stagflation of the 1970s; government policy
D) Great Depression of the 1930s; monetary policy
Answer:  B

3) Fiscal policy includes
A) only decisions related to government expenditure on goods and services.
B) only decisions related to government expenditure on goods and services and the value of transfer payments.
C) only decisions related to the value of transfer payments and tax revenue.
D) decisions related to government expenditure on goods and services, the value of transfer payments, and tax revenue.
Answer:  D



4) Fiscal policy involves
A) the use of interest rates to influence the level of GDP.
B) the use of tax and spending policies by the government.
C) decreasing the role of the Federal Reserve in the everyday life of the economy.
D) the use of tax and money policies by government to influence the level of interest rates.
Answer:  B

5) Fiscal policy
A) is enacted by the Federal Reserve.
B) involves changing interest rates.
C) involves changing taxes and government spending.
D) involves changing the money supply.
Answer:  C

6) Fiscal policy attempts to achieve all of the following objectives EXCEPT ________.
A) a stable money supply
B) price level stability
C) full employment
D) sustained economic growth
Answer:  A
Topic:  Fiscal Policy

7) Changes in which of the following is included as part of fiscal policy?
A) the quantity of money
B) the level of interest rates
C) monetary policy
D) tax rates
Answer:  D



8) All of the following are part of fiscal policy EXCEPT
A) setting tax rates.
B) setting government spending.
C) choosing the size of the government deficit.
D) controlling the money supply.
Answer:  D

9) The budget process includes the
A) President proposing and Congress passing the budget.
B) President passing the budget as proposed by Congress.
C) House of Representatives proposing and the Senate passing the budget.
D) Senate proposing and the House of Representatives passing the budget.
Answer:  A

10) Which branches of the government play a role in the enacting the federal budget?
I.    the President.
II.  the House of Representatives.
III. the Senate.
A) I and II
B) II and III
C) I, II and III
D) I
Answer:  C

11) Which of the following government bodies does NOT participate directly in formulating U.S. fiscal policy?
A) the President and his cabinet
B) the Federal Reserve Board
C) the House of Representatives
D) the Senate
Answer:  B

12) The purpose of the Employment Act of 1946 was to
A) establish goals for the federal government that would promote maximum employment, purchasing power, and production.
B) establish an unemployment compensation system.
C) set up the Federal Reserve System.
D) set targets for the unemployment rate to be achieved by the president.
Answer:  A

13) The Employment Act of 1946 made it the responsibility of the federal government to
A) balance its budget because that policy would create the maximum level of employment.
B) promote maximum employment.
C) provide full employment and a stable balance of payments.
D) improve the distribution of income.
Answer:  B

14) The Employment Act of 1946 states that it is the responsibility of the federal government to
A) promote full employment.
B) promote economic equality.
C) maintain the inflation rate at below 10 percent per year.
D) All of the above answers are correct.
Answer:  A

15) The Council of Economic Advisers
A) proposes the president's budget each year.
B) approves fiscal policy changes.
C) helps the president and the public stay informed about the state of the economy.
D) helps the president make changes in monetary policy.
Answer:  C



16) The Council of Economic Advisors advises the
A) President.
B) Congress.
C) Senate.
D) House of Representatives.
Answer:  A

17) The largest source of government revenues is ________.
A) personal income taxes
B) indirect taxes
C) corporate income taxes
D) social security taxes
Answer:  A

18) What is the largest source of revenue for the federal government?
A) Social Security taxes
B) corporate income taxes
C) personal income taxes
D) sales tax
Answer:  C

19) Which of the following is the largest source of federal government revenue?
A) corporate income taxes
B) Social Security taxes
C) personal income taxes
D) borrowing
Answer:  C

20) The government receives tax revenues from several sources. Rank the following sources from largest to the smallest.
I.    corporate income taxes
II.  personal income taxes
III. Social Security taxes
A) I, II, III
B) II, III, I
C) I, III, II
D) III, II, I
Answer:  B


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