Exam Name___________________________________ 1) consumptionfunctionshowsa A A) egative(inverse)relationshipbetweenconsumptionexpenditureand n disposableincome. B) ositive(direct)relationshipbetweenconsumptionexpenditureandprice p level. C) egative(inverse)relationshipbetweenconsumptionexpenditureandsaving. n D) ositive(direct)relationshipbetweenconsumptionexpenditureand p disposableincome. 2) isposableincomeis D A) ncomeminustaxesplustransferpayments. i B) ncomeplustransferpaymentsminusconsumptionexpenditure. i C) ncomeminussaving. i D) otalincomedividedbythepricelevel.

l. t 3) heslopeoftheconsumptionfunctionis T A) essthan1. l B) egative. n C) reaterthan1. g D) . 1 4) hichofthefollowingvariablesdoesNOThaveadirecteffectofchanging W consumptionexpenditure? A) isposableincome d B) xpectedfutureprofits e C) xpectedfutureincome e D) ealth w 5) utonomousconsumption A A) sindependentofincome. i B) ecreaseswithincome. d C) ncreaseswithincome. i D) sindependentofincomeandmustbeequaltozero. i 6) issavingoccurswhenahousehold D A) avesmorethanitspends. s B) pendsmorethanitsaves. s C) onsumesmorethanitreceivesindisposableincome. c D) pendslessthanitreceivesindisposableincome. s 7) hendisposableincomeis0,consumptionis$2000.Then W A) aving=$2000. s B) aving=-$2000. s C) aving=$0. s D) heMPC=0.2. t 8) hatisthemarginalpropensitytoconsume? W A) hepercentageofincomethatisnotsaved. t B) heratioofthechangeinconsumptionexpendituretothechangeindisposable t income. C) neminusthefractionoftotaldisposableincomethatissaved. o D) hepercentageofincomethatisconsumed. t 9) hemarginalpropensitytoconsume T A) snegativeifdissavingispresent. i B) sbetween0and1. i

C) xceeds1. e D) quals1. e 10) fconsumptionexpendituresforahouseholdincreasefrom$1000to$1800when I disposableincomerisesfrom$1000to$2000,themarginalpropensitytoconsumeis A) .3. 0 B) .18. 0 C) .2. 0 D) .8. 0 11) orahousehold,themarginalpropensitytosaveplusthemarginalpropensityto F consume A) quals0. e B) quals1. e C) qualsanumberthatislargerthelargerthehouseholdsdisposableincome. e D) qualsanumberthatissmallerthelargerthehouseholdsdisposableincome. e 12) fwealthincreases,theconsumptionfunction I A) hiftsdownward. s B) hiftsupward. s C) asasteeperslope. h D) sunaffected. i 13) hesumofplannedconsumptionexpenditure,plannedinvestment,planned T governmentexpenditures,andplannednetexportsis________. A) heexpenditureapproachtorealGDP t B) ggregateplannedexpenditure a C) ggregateexpenditure a D) ealGDP r 14) nyexpenditurecomponentthatdependsonthelevelofrealGDPiscalled A A) quilibriumexpenditure. e B) utonomousexpenditure. a C) puriousexpenditure. s D) nducedexpenditure. i 15) sanationsGDPincreases,thatnations A A) utonomousconsumptionincreases. a B) xportsincrease. e C) utonomousconsumptiondecreases. a D) mportsincrease. i 16) faggregateplannedexpendituresarelessthanrealGDPthen I A) irmsinventorieswilldecreaseandrealGDPwilldecreaseasproduction f falls. B) irmsmustincreasetheirplannedexpendituresuntilaggregateplanned f expendituresincreasetothelevelofrealGDP. C) heeconomyremainsindisequilibriumuntilaggregateplanned t expendituresincreasetothelevelofrealGDP. D) irmsinventorieswillincreaseandrealGDPwilldecreaseasproduction f falls. 17) heninvestmentislessthanplannedinvestment,aggregateplannedexpenditure W is________thanactualaggregateexpenditureandinventoriesare________than planned. A) reater;less g B) ess;less l C) ess;greater l D) reater;greater g 18) quilibriumexpenditureisdefinedasthelevelofaggregateexpenditurewhere E A) ctualaggregateexpenditureequalsrealGDP. a

B) pendingequalsoutput. s C) ggregateplannedexpenditureequalsrealGDP. a D) otalinventoriesequalzero. t 19) hentheeconomyisinequilibrium, W A) hangesinautonomousspendingwillhavenoimpactonrealGDP. c B) lannedinvestmentequalsactualinvestment. p C) lannedsavingswillequalzero. p D) herecanbenounemployment. t 20) hedifferencebetweenplannedandunplannedspendingis________. T A) lwaysnegative a B) lwayspositive a C) nventories i D) nplannedchangesin u inventories 21) hemultipliereffectexistsbecauseachangeinautonomousexpenditure T A) romptsfurtherexports. p B) illundergoitscompleteeffectinoneround. w C) eadstochangesinincome,whichgeneratefurtherspending. l D) eavestheeconomyintheformofimports. l 22) ecauseofthemultiplier,aone-timechangeinexpenditurewill B A) ecreasesavingandinvestmentactivityandfutureincome. d B) avelittlesecondaryeffectonincome. h C) eneratemoreadditionalincomethantheinitialchangeinexpenditure. g D) xpandincomebyaninfiniteamount. e 23) hemultiplierislargerifthe T A) arginalpropensitytosaveislarger. m B) arginalpropensitytoimportislarger. m C) ncometaxrateishigher. i D) arginalpropensitytoconsumeislarger. m 24) hemultiplierisgreaterthan1because T A) osthouseholdsareunabletosave. m B) nepersonsspendingbecomesanothersincome. o C) ouseholdspendingexceedsincome. h D) orporatespendingexceedscorporateincome. c 25) finvestmentincreasesby$300and,inresponse,equilibriumaggregateexpenditure I increasesby$600,themultiplieris A) .5. 0 B) .2. 0 C) . 5 D) . 2 26) ftherearenoincometaxesorimports,themultiplierequals I A) /(1-marginalpropensitytoimport). 1 B) /(1-marginalpropensitytoinvest). 1 C) /(1-marginalpropensitytoconsume). 1 D) /(1-marginalpropensitytosave). 1 27) hichofthefollowingisconsideredapurposeofthefederalbudget? W I. Tohelptheeconomyachievefullemployment. II. Tofinancetheactivitiesofthefederalgovernment.

III.

Topromotesustainedeconomicgrowth. A) andIII I B) andII I C) IandIII I

D) ,IIandIII I

28) hichbranchesofthegovernmentplayaroleintheenactingthefederalbudget? W I. thePresident. II. theHouseofRepresentatives. III. theSenate. A) ,IIandIII I B) IandIII I C) I D) andII I 29) hepurposeoffiscalpolicyisto T A) chievefullemployment. a B) aintainpricelevelstability. m C) romoteeconomicgrowth. p D) lloftheaboveanswersarecorrect. A 30) hepurposeoftheEmploymentActof1946wasto T A) etuptheFederalReserveSystem. s B) ettargetsfortheunemploymentratetobeachievedbythepresident. s C) stablishanunemploymentcompensationsystem. e D) stablishgoalsforthefederalgovernmentthatwouldpromotemaximum e employment,purchasingpower,andproduction. 31) helargestsourceofgovernmentrevenuesis________. T A) orporateincometaxes c B) ocialsecuritytaxes s C) ersonalincometaxes p D) ndirecttaxes i 32) llofthefollowingaregovernmentoutlaysEXCEPT A A) urchasesofgoodsandservices. p B) urchasesofcorporatebonds. p C) nterestonthegovernmentsdebt. i D) ransferpayments. t 33) hegovernmentsbudgetdeficitorsurplusequalsthe T A) hangeinoutlaysdividedbychangeinrevenue. c B) hangeinrevenueminuschangeinoutlays. c C) verageoutlaydividedbyaveragerevenue. a D) otaltaxrevenueminustotalgovernmentoutlays. t 34) heneverthefederalgovernmentspendsmorethanitreceivesintaxrevenue,then W bydefinitionit A) ncreaseseconomicgrowth. i B) unsabudgetsurplus. r C) unsabudgetdeficit. r D) peratesabalancedbudget. o 35) hichofthefollowingstatementsregardingtheU.Sgovernmentsbudgetsurpluses W anddeficitsiscorrect? A) udgetdeficitstendtoshrinkduringperiodsofrecession. B B) ftaxrevenuesexceedoutlays,thegovernmenthasabudgetdeficit. I C) uringthe1980slargedeficitsarosefromacombinationoftaxcutsand D expenditureincreases. D) ince1970,federaltaxrevenueshavegenerallyexceededoutlays. S 36) hesumofpastbudgetdeficitsinexcessofthesumofpastbudgetsurplusesrefers T to A) hecyclicallyunbalancedbudget. t B) hefederalgovernmentnetworth. t

C) hetradedeficit. t D) henationaldebt. t 37) upposeacountryhasbeenrunningapersistentgovernmentbudgetdeficit.If S thedeficitisreduced,butremainspositive, A) overnmentdebtwillincrease. g B) overnmentdebtwilldecrease. g C) nterestpaymentsonthedebtimmediatelywilldecrease. i D) hecountrywillexperienceabudgetsurplus. t 38) riortotheGreatDepression,thepurposeofthefederalbudgetwasto________. P A) inancetheactivitiesofthegovernment f B) ecreaseunemployment d C) tabilizetheeconomy s D) aintainlowinterestrates m 39) helargestitemofgovernmentoutlaysis________. T A) ebtinterest d B) ebtreduction d C) xpendituresongoodsand e D) ransferpayments t services 40) heCouncilofEconomicAdvisershavethefollowingrolesexcept________. T A) roposingthefederalgovernmentsbudgettoCongress p B) eepingthePresidentinformedaboutthecurrentstateoftheeconomy k C) onitoringtheU.S.economy m D) akingforecastsofwheretheeconomyisheading m 41) nexampleofadiscretionaryfiscalpolicyiswhen A A) oodstamppaymentsrisewhentheeconomyisinarecession. f B) axreceiptsfallasincomesfall. t C) nemploymentcompensationpaymentsrisewithunemploymentrates. u D) ongresspassesalawthatraisespersonalmarginaltaxrates. C 42) heeffectsofachangeingovernmentexpendituresismultipliedthroughoutan T economy A) nlywhenthereisadecreaseinexpenditure. o B) nlywhenthereisanincreaseinexpenditure. o C) ecausegovernmentexpendituregenerateschangesinconsumption b expenditure. D) ecausetaxesareleftunchanged. b 43) heautonomoustaxmultiplieris T A) qualtothegovernmentexpendituremultiplier. e B) mallerthanthegovernmentexpendituremultiplier. s C) egative. n D) argerthanthegovernmentexpendituremultiplier. l 44) nexampleofafiscalpolicydesignedtoincreaserealGDPis A A) decreaseingovernmentexpenditure. a B) nincreaseintaxes. a C) cutintaxes. a D) oneoftheaboveanswersiscorrect. N

45) fthegovernmentwantstoengageinfiscalpolicytoincreaserealGDP,itcould I A) ncreasegovernmentexpenditureinordertoincreaseaggregatedemand. i B) ncreasegovernmentexpenditureinordertoincreaseshort-runaggregate i supply. C) ecreasegovernmentexpenditureinordertoincreaseshort-runaggregate d supply. D) ecreasegovernmentexpenditureinordertodecreaseaggregatedemand. d 46) singtheAD-ASmodel,anincreaseingovernmentexpenditure U A) asafullmultipliereffectonrealGDP,leavingthepricelevelunchangedin h thelongrun. B) asnoimpactonrealGDP,butwillincreasepotentialGDP. h C) ncreasesbothrealGDPandthepricelevel. i D) asnoimpactonrealGDP. h

47) ntheabovefigure,iftheeconomyisinitiallyatpointDandgovernment I expenditureincreases,theeconomywillmovetopoint A) ovetopointC. m B) tayatpointD. s C) ovetopointB. m D) ovetopointA. m 48) nautomaticstabilizer A A) nvolvesachangeinpersonaltaxrates. i B) nvolvesachangeingovernmentpurchases. i C) striggeredbythestateoftheeconomy. i D) equiresactionbytheCongress. r 49) ncometaxesandtransferpayments I A) ncreasetherateoflong-runincomegrowth. i B) ctlikeeconomicshockabsorbersandstabilizefluctuationsinincome. a C) ncreasetheeffectsofinvestmentandimports. i D) reventtheeconomyfrommovingtowardequilibrium. p 50) ecauseofautomaticstabilizers,whenGDPfluctuatesthe B

A) overnmentsdeficitfluctuatesinverselywithGDPsothatitislargerwhen g GDPdecreases. B) overnmentsbudgetremainsinbalance. g C) overnmentsdeficitfluctuatesdirectlywithGDPsothatitislargerwhen g GDPincreases. D) heeconomywillautomaticallygotofullemployment. t 51) nducedtaxes I A) arywithrealGDP. v B) refixedovertime. a C) reautonomous. a D) reindependentofrealGDP. a 52) hestructuraldeficitorsurplusisthe T A) ifferencebetweenactualgovernmentoutlaysandactualgovernmentreceipts. d B) overnmentbudgetdeficitorsurplusthatwouldoccuriftheeconomywereat g potentialGDP. C) ctualgovernmentbudgetdeficitorsurplusminusexpendituresforcapital a improvements. D) hangeinnationaldebtthatwillresultfromcurrentbudgetarypolicies. c 53) cyclicalsurplusisa A A) ominal,asopposedtoreal,budgetsurplus. n B) udgetsurplusonlybecauserealGDPisequaltopotentialGDP. b C) udgetsurplusonlybecauserealGDPisgreaterthanpotentialGDP. b D) udgetsurplusonlybecauserealGDPislessthanpotentialGDP. b 54) fthegovernmentsbudgetisinsurplusevenwhentheeconomyisatfull I employment,thesurplusissaidtobe A) yclical. c B) iscretionary. d C) ersisting. p D) tructural. s

 1) D 2) A 3) A 4) B 5) A 6) C 7) B 8) B 9) B 10) D 11) B 12) B 13) B 14) D 15) D 16) D 17) A 18) C 19) B 20) D 21) C 22) C 23) D 24) B 25) D 26) C 27) D 28) A 29) D 30) D 31) C 32) B 33) D 34) C 35) C 36) D 37) A 38) A 39) D 40) A 41) D 42) C 43) B 44) C 45) A 46) C 47) A 48) C 49) B 50) A 51) A

52) B 53) C 54) D