Macroeconomics

‭Chapter 5: Review Questions‬ ‭1. An increase in government spending would be best used to:‬

‭A.‬ ‭reduce inflation.‬ ‭B.‬ ‭reduce the interest rate.‬ ‭C.‬ ‭avoid crowding out.‬ ‭D.‬ ‭close a recessionary gap.‬ ‭2. A budget defcit occurs when:‬

‭A.‬ ‭government spending exceeds tax revenues for a given period.‬ ‭B.‬ ‭imports exceed exports for a given period.‬ ‭C.‬ ‭the total amount that the government owes at a given time is negative.‬ ‭D.‬ ‭national debt decreases.‬ ‭3.‬ ‭A‬ ‭drop‬ ‭in‬ ‭real‬ ‭investment‬ ‭resulting‬ ‭from‬ ‭higher‬ ‭interest‬ ‭rates‬ ‭due‬ ‭to‬‭government‬‭purchases‬‭is‬ ‭known as:‬

‭A.‬ ‭the Laffer effect.‬ ‭B.‬ ‭crowding out.‬ ‭C.‬ ‭policy mix.‬ ‭D.‬ ‭balanced budget.‬ ‭4. What effect does a loose monetary policy have on interest rates?‬

‭A.‬ ‭Increases interest rates‬ ‭B.‬ ‭Has no impact on interest rates‬ ‭C.‬ ‭Decreases interest rates‬ ‭D.‬ ‭Unpredictable effect on interest rates‬ ‭5. In the context of the Laffer curve, what happens when the tax rate is set at 100%?‬

‭A.‬ ‭Tax revenue increases signifcantly.‬ ‭B.‬ ‭Tax revenue remains the same.‬ ‭C.‬ ‭Tax revenue decreases to zero.‬ ‭D.‬ ‭Tax revenue decreases slightly.‬ ‭6. What does the Phillips Curve illustrate in the short run?‬ ‭A.‬ ‭The relationship between inflation and unemployment‬ ‭B.‬ ‭The trade-off between taxes and government spending‬ ‭C.‬ ‭The impact of fscal policy on aggregate demand‬ ‭D.‬ ‭The effect of monetary policy on purchasing power‬

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