Fiscal Policy MC Test Review B

Which of the following would be an example of automatic stabilizers working during a recession?

• A Non-discretionary government spending on social welfare

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

• C Raising marginal tax rates to dissuade 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 left?

• A An decrease 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 A decrease in government spending on public education

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

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

• B The price level is increasing.

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

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

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

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

• 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 occurs when the government spends more than in brings in in revenue (taxes)

• 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, an increase in unemployment is expected to be accompanied by

• A higher labor-force participation

• B an decrease in inflation

• C an increase in the productivity of capital

• D an increase in the government deficit

• E no change 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 Decreasing tax rates

• E Increasing the minimum wage

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

• A Consumer pessimism

• B Population decrease

• C Cost of resources

• D Government Spending

• E. Taxes

A decrease in consumer spending 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 low marginal propensity to consume implies which of the following?

• A A large change in consumption when income changes

• B A low savings rate

• C A high marginal tax rate

• D An equilibrium level of income near full employment

• E A high 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 a lot, consumption is a little.

• D The marginal propensity to consume is 0.1.

• E The marginal propensity to save is 0.1.