Fiscal Policy MC Test Review A

Supply-side economists are most likely to favor which of the following short-run policies?

• A Increasing government spending on social welfare

• B Increasing government spending to help promote the country’s business abroad

• C Cutting marginal tax rates to promote savings, investment, and work

• D Financing government spending on infrastructure by increasing sales tax rather than increasing income tax

• E Increasing corporate profit tax rates

Which of the following policy changes will most likely shift the long-run aggregate supply curve to the right?

• A An increase in income taxes

• B An increase in the money supply

• C An increase in the required reserve ratio

• D An increase in the government budget deficit financed by borrowing

• E An increase in government spending on public education

If a country’s production possibilities curve is shifting outward, which of the following must be true?

• A There is cyclical unemployment.

• B The price level is increasing.

• C The aggregate demand curve is shifting to the right.

• D The long-run Phillips curve is shifting to the right.

• E The long-run aggregate supply curve is shifting to the right.

Which of the following is true about a country’s national debt?

• A It is the sum of the country’s trade deficit and government budget deficit.

• B It increases when gross domestic product increases.

• C It increases when the country’s government has a budget deficit.

• D It decreases when the country’s exports exceed its imports.

• E It decreases when national savings decrease.

According to the short-run Phillips curve, a decrease in unemployment is expected to be accompanied by

• A higher labor-force participation

• B an increase in inflation

• C an increase in the productivity of capital

• D an increase in the government deficit

• E a decrease in real gross domestic product

A country’s economy is currently in equilibrium at point R. Which of the following policy actions could the country’s government take to achieve potential output (Yp )?

• A Decreasing the money supply

• B Decreasing investment tax credits

• C Increasing interest rates

• D Increasing government expenditures

• E Increasing the minimum wage

An increase in which of the following would cause the aggregate demand curve to shift to the left?

• A Consumer optimism

• B Population

• C Cost of resources

• D Income taxes

• E Net exports

An increase in consumer confidence will result in which of the following in the short run?

• A A rightward shift of the long-run aggregate supply curve

• B A rightward shift of the short-run aggregate supply curve

• C A leftward shift of the short-run aggregate supply curve

• D A rightward shift of the aggregate demand curve

• E A leftward shift of the aggregate demand curve

A high marginal propensity to consume implies which of the following?

• A A small change in consumption when income changes

• B A high savings rate

• C A high marginal tax rate

• D An equilibrium level of income near full employment

• E A low marginal propensity to save

Based on the level of savings and disposable income data in the table above, which of the following must be true?

• A The marginal propensity to save is 0.2.

• B The marginal propensity to save is 0.9.

• C When disposable income is , consumption is .

• D The marginal propensity to consume is 0.1.

• E The marginal propensity to consume is 0.9.