Answers to questions can be found in the answers section.

  1. Fiscal policy involves
    1. changing the money supply.
    2. changing interest rates.
    3. lowering trade barriers.
    4. using the government budget to impact the economy.
  1. The main macroeconomic goals of fiscal policy do not include
    1. short-run stabilization.
    2. long-term economic growth.
    3. adequate money growth.
    4. full employment.
  1. A larger discretionary budget surplus would ordinarily lead to
    1. increased output.
    2. increased employment.
    3. increased prices.
    4. decreased prices.
  1. Rising GDP would automatically cause
    1. tax revenues to fall.
    2. government spending to rise.
    3. a government budget deficit.
    4. a government budget surplus.
  1. A fiscal policy designed to increase aggregate demand would include
    1. increased transfer payments.
    2. tax increases aimed to change spending on durable goods like autos.
    3. tax cuts designed to reduce the cost of labor to firms.
    4. All of the above.
  1. A government budget deficit ordinarily tends to
    1. decrease national savings and raise interest rates.
    2. increase national savings and reduce interest rates.
    3. decrease national savings and reduce interest rates.
    4. increase national savings and raise interest rates.
  1. Problems with government deficits include
    1. the possibility of future inflation.
    2. national solvency.
    3. larger trade deficits.
    4. All of the above.
  1. If government spending rose by $100 and government taxes rose by $100, then the most likely change in the national debt would be
    1. a large increase.
    2. a large decrease.
    3. small to zero.
    4. infinity.
  1. A fiscal policy designed to reduce a country’s inflation rate would be best described as
    1. a monetary contraction.
    2. a monetary expansion.
    3. a larger government surplus.
    4. a larger government deficit.
  1. If the government had a fiscal policy of increasing the government deficit at the same time the central bank had an expansionary monetary policy, the effect of these two policies on the interest rate on government bonds would be (assuming that inflationary expectations are not affected by these policies)
    1. offsetting.
    2. reinforcing.
    3. discretionary.
    4. automatic.
  1. Fiscal expansion can be used to overcome short-run deficiency of aggregate demand but may risk
    1. causing inflation that is too low.
    2. a slowdown in long-run economic growth.
    3. causing interest rates that are too low.
    4. causing too much national saving.