____ 1. "Discretionary" fiscal policy is so named because
it:
A. is undertaken at the option of
the nation’s central bank.
B. involves specific changes in taxes
and government spending expressly for stabilization purposes at the option
of Congress.
C. occurs automatically as the nation’s
level of GDP changes.
D. is invoked secretly by the Council
of Economic Advisors.
____ 2. Which of the following best describes non-discretionary
fiscal policy as it functions in the US?
A. Personal and corporate income tax
collection rise automatically as GDP rises.
B. Congressional decisions to alter
current levels of taxes and government spending.
C. The size of the balanced budget
multiplier varies inversely with the level of GDP.
D. Personal and corporate income tax
collections fall automatically as GDP rises.
____ 3. If AD intersects the AS curve in the AS curve’s
intermediate range, an increase in AD will cause:
A. lower prices and higher unemployment.
B. a higher price level and higher
unemployment.
C. higher prices and no change in
employment.
D. a higher price level and lower
unemployment.
____ 4. The "crowding out effect" suggests that:
A. it is very difficult to have excessive
aggregate spending in our economy.
B. consumer and investment spending
always vary inversely.
C. tax increases are paid primarily
out of savings and therefore are not an effective fiscal policy.
D. increases in government spending
financed through borrowing will increase the interest rate and thereby
reduce investment.
____ 5. The goldsmith’s ability to create money was based
on the fact that:
A. the goldsmith was required to keep 100 percent gold reserves.
B. paper money was rarely redeemed for gold.
C. withdraws of gold tended to exceed deposits of gold in any given time
period.
D. consumers and merchants preferred to use gold for transactions, rather
than paper money.
____ 6. In the US economy the money supply is controlled
by the:
A. President.
B. US Treasury.
C. Federal Reserve System.
D. Senate Committee on Banking and Finance.
E. Congress.
F. Bill Gates.
____ 7. The reserve ratio refers to the ratio of a bank’s:
A. demand deposits to its total liabilities.
B. required reserves to its total demand deposits.
C. required reserves to its liabilities and net worth.
D. capital stock to its total assets
____ 8. The discount rate is the interest:
A. rate at which the central banks lend to the US Treasury.
B. rate at which commercial banks lend to the public.
C. rate at which the Federal Reserve Banks lend to commercial banks.
D. yield on long-term government bonds.
____ 9. Monetary policy:
A. is less politically acceptable than is fiscal policy.
B. will be weakened if the velocity of money changes in the opposite direction
as the money supply.
C. will be weakened if the velocity of money changes in the same direction
as the money supply.
D. is designed primarily to alter the velocity of money.
____ 10. An easy money policy may be less effective than
a tight money policy because:
A. commercial banks may not be able to find loan customers.
B. the Federal Reserve Banks are always willing to make loans to commercial
banks which are short of reserves.
C. fiscal policy always works at cross purposes with an easy money policy.
D. the circularity or feedback problem complicates an easy money policy
more than it does a tight money policy.
____ 11. Which of the following is correct?
A. An easy money policy will cause the dollar to appreciate and will increase
American net exports.
B. An easy money policy will cause the dollar to appreciate and will decrease
American net exports.
C. An easy money policy will cause the dollar to depreciate and will increase
American net exports.
D. An easy money policy will cause the dollar to depreciate and will decrease
American net exports.
Answers: 1.B 2.A 3.D 4.D 5. B 6. C 7. B 8. C 9. B 10. A 11. C