Question

16) 16) By definition a direct expenditure offiset will occur whenever A) the interest rate rises. B) the interest rate falls C) the government increases spending in an area that competes with the private sector. D) the government increases spending for the military 17 17) Europe and Asia both fall into deep economic recessions. What impact will this have on U.S. asgregate demand? A) U.S aggregate demand will decrease. B) The US aggregate demand curve will shift to the right C) U.S aggregate demand will remain unchanged. D) None. A nation's aggregate demand is only affected by its own economic conditions. 18) 18) The crowding out effect is usually associated with A) a temporary change in taxes. B) the reinforcing impact of state and local tax changes on federal tax changes. C) the impact of a tax cut when the aggregate supply function is D) an increase in the interest rate caused by government borrowing. horizontal. 19 19) The govenment wants to increase its spending by S1 billion to stimulate the economy and is counting on the government spending multiplier to help. Taking into account direct expenditure offset effects, what is its best spending option? B) Expanding the school lunch program D) Constructing more low income housing A) A new cruise missile for the military C) Providing textbooks for college students. 20) 20) Fiscal policy may end up being destabilizing to an economy because A) the President may have different goals than Congress B) the economy is almost always at full employment. C) various time lags associated with fiscal policy cause the policy changes to take effect too late to solve the problem it was supposed to solve. D) there is never a long enough time lag. 21) 21) One tenet of classical economics is that A) wages and prices are "sticky downward." B) the role of the government should be limited, since the market will always be self-correcting C) t he government should set a minimum wage slightly above the natural market equilibrium rate. D) the government should intervene whenever necessary to avoid any unemployment.

Answer 1

Q.Nos: Answers:

16: -------C

17---------A

18---------D

19---------A

20---------C

21---------B