Macro Exam 3

A tax cut is likely to cause

• an increase in consumer spending.

• an increase in government spending.

• a decrease in aggregate demand.

• a decrease in saving.

Inflation occurs when

• output increases faster than unemployment.

• unemployment increases faster than the labor force.

• aggregate demand increases faster than output.

• aggregate demand increases faster than unemployment.

Fiscal stimulus is

• an increase or decrease in government spending.

• an increase in government spending or a decrease in taxes.

• achieved when government dollars are spent on consumer goods but not on military goods.

• the difference between equilibrium output and full-employment output.

Which of these statements about fiscal policy is correct?

• Fiscal restraint is implemented when the economy is experiencing high unemployment.

• The goal of fiscal policy is to match aggregate demand with full employment potential.

• All of these choices are correct.

• Fiscal stimulus is implemented when the economy is experiencing high inflation.

Which of the following does not represent an example of government spending?

• payment to the company that cleans the U.S. Capitol

• payment of Social Security benefits

• paychecks to government workers

• purchase of military aircraft

Which of the following is not an example of investment spending?

• inventory expenditures

• construction of a new factory

• the purchase of stock in the stock market

• new equipment

The four components of aggregate demand are:

• net exports, income, interest, and investment.

• consumption, interest, taxes, and government spending.

• net exports, government spending, investment, and foreign trade.

• consumption, investment, government spending, and net exports.

When you receive this week's paycheck, you can either spend it or save it. The fraction of each additional dollar of disposable income that you is known as your .

• spend; marginal propensity to consume

• invest; marginal propensity to multiply

• save; marginal propensity to invest

• pay as taxes; marginal propensity to spend

Which of the following could cause a recession?

• a decline in aggregate demand

• an increase in government spending

• an increase in aggregate supply.

• a decline in unemployment

Which of the following is a fiscal policy prescription for ending a recession?

• Increase government expenditures to let the multiplier work.

• Raise interest rates to stimulate saving.

• Restrict exports to increase injections in the domestic economy.

• Raise taxes to pay for greater transfer payments to stimulate the economy.