Question

1.The maintenance of general economic stability relies most heavily on:

	A.	Federal fiscal policy
	B.	Coordinated state and local fiscal policies
	C.	Tax and revenue policies of state governments
	D.	Federal aid to the states

2.If we passed a constitutional amendment requiring a balanced budget every year, this would probably

	A.	prevent recessions.
	B.	make our recessions into depressions.
	C.	create inflations.
	D.	raise interest rates.

3.If the President says he will request higher taxes if price increases accelerate, the real purpose of
such taxes would be to:

	A.	Hold aggregate demand of consumers, business and government within the limits of what can be produced
	B.	Reduce the government budget
	C.	Pay off social Security pensioners
	D.	Pay off the national debt

4.An inflationary gap measures the amount by which:

	A.	Aggregate demand pushes up average prices in any given year
	B.	The general price level exceeds the general cost level
	C.	Wage increases exceed price increases
	D.	None of these

5.An important conclusion of the Keynesian theory of income and employment is that:

	A.	The economy automatically tends toward equilibruim at the level of full employment
	B.	The economy never tends towards equilibrium
	C.	The economy may be in equilibrium at any level of employment
	D.	The economy's level of employment is unrelated to its level of income

6. An appropriate fiscal policy for severe demand-pull inflation is:

	A.	an increase in government spending.
	B.	depreciation of the dollar.
	C.	a reduction in interest rates.
	D.	a tax rate increase.

Answer 1

1. The correct option is A) The maintenance of general economic stability relies most heavily on Federal fiscal policy.
   Fiscal policy can help stabilize the economy during the period of a downturn by moderating and sustaining aggregate demand and incomes of the private sector.
2. The correct option is B) If we passed a constitutional amendment requiring a balanced budget every year, this would probably make our recessions into depressions. Whatever the state of the economies this would tip them into recessions and then to deeper recessions and eventually depressions.

       4. The correct option is D) The answer is none of these
           The inflationary gap measures the amount of excess aggregate demand over aggregate supply at full employment.

       6. The correct option is D) An appropriate fiscal policy for severe demand-pull inflation is a tax rate increase.