macroeconomic policy tools Mcqs
1. Which of the following is an automatic stabilizer ?
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A. Unemployment benefits

B. spending on the space shuttle

C. Spending on public schools

D. Military spending

E. All of these answers are automatic stabilizers

2. The initial effect of an increase in the money supply is to ?
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A. increase the price level

B. decrease the interest rate

C. increase the interest rate

D. decrease the price level

3. Suppose a wave of investor and consumer optimisms has increased spending so that the current level of input exceeds the long-run natural rate If policy makers choose to engage in activist stabilization policy they should ?
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A. decrease taxes, which shifts the aggregate demand curve to the right

B. decrease taxes, which shifts the aggregate demand curve to the left

C. decrease government spending Which the shifts the aggregate demand curve to the left

D. decrease government spending which shifts the aggregate demand curve to the right

4. When money demand is expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis an increase in the interest rate ?
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A. decrease the quantity demanded of money

B. increase the quantity demanded of money

C. decreases the demand for money

D. None of these answers

E. increases the demand for money

5. Which of the following best describes how an increase in the money supply shift the aggregate demand curve ?
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A. The money supply shifts right prices fall spending increases and the aggregate demand curve shifts right

B. The money supply shifts right the interest rate rises investment decreases and the aggregate demand curve shifts left

C. The money supply shifts right, prices rise, demand curve shifts left

D. The money supply shifts right the interest rate falls, investment increases, and the aggregate demand curve shifts right
6. An increase in the marginal propensity to consumer (MPC) ?
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A. has no impact on the value of the multiplier?

B. rarely occurs because the MPC is set by congressional legislation

C. raises the value of the multiplier

D. lowers the value of the multiplier

7. Suppose the government increases its purchases by Rs16 billion. If the multiplier effect exceeds the crowding out effect, then ?
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A. The aggregate demand curve shifts to the right by more than Rs 16 billion

B. the aggregate supply curve shifts to the left by more than Rs 16 billion

C. The aggregate demand curve shifts to the left by more than Rs 16 billion

D. The aggregate supply curve shifts to the right by more than Rs 16 billion

8. For the Eurozone countries, the most important source of the downward slope of the aggregate demand curve is probably ?
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A. The interest-rate effect

B. The fiscal effect

C. None of these answers

D. The wealth effect

E. The exchange-rate effect

9. Which of the following statements regarding taxes is correct ?
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A. A decrease in taxes shifts the aggregate supply curve to the left

B. A permanent change in taxes has a greater effect on aggregate demand than a temporary change in taxes.

C. An increase in taxes shifts the aggregate demand curve to the right

D. Most economists believe that in the short run the greatest impact of a change in taxes is on aggregate supply, not aggregate demand

10. Keynes liquidity preference theory of the interest rate suggests that the interest rate is determined by ?
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A. the supply and demand for loanable funds

B. aggregate supply and aggregate demand

C. the supply and demand for labor

D. the supply and demand for money
11. When an increase in government purchases increases the income of some people, and those people spend some of that increase in income on additional consumer goods, we have seen a demonstration of ?
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A. The multiplier effects

B. The crowding out effect

C. supply side economics

D. None of these answers

12. If the marginal propensity of consume MPC is 0.75 the value of the multiplier is ?
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A. 7.5

B. 0.75

C. 4

D. 5

13. The initial impact of an increase in government spending is to shift ?
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A. aggregate supply to the left

B. aggregate demand to the right

C. aggregate demand to the left

D. aggregate supply to the right

14. In the market for real output, the initial effect of an increase in the money supply is to ?
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A. shift the aggregate demand curve to the right

B. shift the aggregate supply curve to the left

C. shift the aggregate supply curve to the right

D. shift the aggregate demand curve to the left

15. Suppose a wave of investor and consumer pessimism in the USA causes a reduction in spending If the US federal Reserve (Which has a broader remit than the Bank of England Which is charged only with controlling inflation) chooses to engage in activist stabilization policy it should ?
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A. decrease government spending and increase taxes

B. decrease interest rates

C. decrease the money supply

D. Increase government spending and decrease taxes

16. When supply and demand for money are expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis an increase in the price level ?
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A. None of these answers

B. shifts money demand to the left and decrease the interest rate

C. shifts money demand to the right and increases the interest rate

D. shifts money demand to the right and decreases the interest rate

E. shifts money demand to the left and increases the interest rate

17. When an increase in government purchases raises incomes shifts money demand to the right raises the interest rate, and lowers investment we have seen a demonstration of ?
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A. supply-side economics

B. None of these answers

C. The crowding-out effect

D. The multiplier effects

18. Which of the following statements about stabilization policy is not true ?
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A. When policy makers implement activist stabilization policies there is a significant risk that their policies may actually have a destabilizing effect

B. None of these answers are true

C. Many economists prefer automatic stabilizers because they affect the economy with a shorter lag than activist stabilization policy

D. Long lags enhance the ability of policy makers to fine tune the economy