AP ECONOMICS: CHAPTER 12 QUIZ

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AP ECONOMICS: CHAPTER 12 QUIZ

1.

Di screti onary fi scal pol icy refers to:


A.

any change i n government spendi ng or taxes that destabi l i zes the economy.

B.

the authori ty that the Presi dent has to change personal i ncome tax rates.

C.

changes i n taxes and
government expendi tures made by Congress to stabi l ize the economy.

D.

the changes i n taxes and transfers that occur as GDP changes.

2.

Fi scal pol icy refers to the:


A.

mani pul ati on of government spendi ng and taxes to stabi l ize domesti c output, empl oyment,
and the pri ce l evel.

B.

mani pul ati on of government spendi ng and taxes to achi eve greater equal i ty i n the di stri buti on of i ncome.

C.

al teri ng of the i nterest rate to change aggregate demand.

D.

fact that equal i ncreases i n government spendi ng and taxati on w
i l l be contracti onary.

3.

Contracti onary fi scal pol icy i s so named because i t:


A.

i nvol ves a contracti on of the nati on's money suppl y.

B.

necessari ly reduces the si ze of government.

C.

i s ai med at reduci ng aggregate demand and thus achi evi ng pri ce stabi li
ty.

D.

i s expressl y desi gned to contract real GDP.

4.

An economi st who favors smal l er government woul d recommend:


A.

tax cuts duri ng recessi on and reducti ons i n government spendi ng duri ng i nfl ati on.

B.

tax i ncreases duri ng recessi on and tax cuts duri ng i n
fl ati on.

C.

tax cuts duri ng recessi on and tax i ncreases duri ng i nflation.

D.

i ncreases i n government spendi ng duri ng recessi on and tax i ncreases duri ng i nfl ati on.

5.

If the MPC i n an economy i s .8, government coul d shi ft the aggregate demand curve ri ghtwar
d by $100 bi l l ion
by:


A.

i ncreasi ng government spendi ng by $25 bi l l ion.

B.

i ncreasing government spendi ng by $80 bi l l ion.

C.

decreasi ng taxes by $25 bi l l ion.

D.

decreasi ng taxes by $100 bi l l ion.

6.

If the MPS i n an economy i s .4, government coul d shi ft th
e aggregate demand curve l eftward by $50 bi l l ion by:


A.

reduci ng government expendi tures by $125 bi l l ion.

B.

reduci ng government expendi tures by $20 bi l l ion.

C.

i ncreasi ng taxes by $50 bi l l i on.

D.

i ncreasing taxes by $250 bi l l ion.

7.

Di screti onary fi scal
pol icy wi l l stabili ze the economy most when:


A.

defi ci ts are i ncurred duri ng recessi ons and surpluses duri ng i nfl ati ons.

B.

the budget i s bal anced each year.

C.

defi ci ts are i ncurred duri ng i nfl ati ons and surpl uses duri ng recessions.

D.

budget surpl uses a
re conti nuously i ncurred.

8.

Suppose that the economy i s i n the mi dst of a recessi on. Whi ch of the fol l owi ng pol i cies woul d most l i kel y end
the recessi on and sti mul ate output growth?


A.

a Congressi onal proposal to i ncur a Federal surpl us to be used for th
e reti rement of publ i c debt

B.

a reducti on i n agri cul tural subsidies and veterans' benefi ts

C.

a postponement of a hi ghway constructi on program

D.

a reducti on i n Federal tax rates on personal and corporate i ncome

9.

Assume that aggregate demand i n the econ
omy i s excessi ve, causi ng demand
-
pul l i nflation. Whi ch of the
fol l owi ng woul d be most i n accord wi th appropri ate government fi scal pol icy?


A.

an i ncrease i n Federal i ncome tax rates

B.

an i ncrease i n the si ze of i ncome tax exempti ons for each dependent

C.

passage of l egi sl ati on provi ding for the constructi on of 8,000 new school bui l dings

D.

an i ncrease i n soi l conservati on subsidi es to farmers

10.

A contracti onary fi scal pol icy i s shown as a:


A.

ri ghtward shi ft i n the economy's aggregate demand curve.

B.

ri ghtward shi ft i n the economy's aggregate suppl y curve.

C.

movement al ong an exi sti ng aggregate demand curve.

D.

l eftward shi ft i n the economy's aggregate demand curve.





11.

Refer to the above di agram, i n whi ch
Q
f

i s the ful l
-
empl oyment output. A con
tracti onary fi scal pol icy woul d be
most appropri ate i f the economy's present aggregate demand curve were at:


A.

AD
0
.

B.

AD
1
.

C.

AD
2
.

D.

AD
3
.

12.

Refer to the above di agram, i n whi ch
Q
f

i s the ful l
-
empl oyment output. An expansi onary fi scal pol icy woul d be
most appropri ate i f the economy's present aggregate demand curve were at:


A.

AD
0
.

B.

AD
2
.

C.

AD
3
.

D.

None of the above.



13.

Refer to the above di agram, i n whi ch
Q
f

i s the ful l
-
empl oyment output. If the economy's present aggregate
demand curve i s AD
2
:


A.

the most appropri ate fi scal pol i cy i s an i ncrease of government expendi tures or a reducti on of taxes.

B.

the most appropri ate fi scal pol icy i s a reducti on of government expendi tures or an i ncrease of taxes.

C.

government shoul d undertake nei ther an expa
nsi onary nor a contracti onary fi scal pol i cy.

D.

the economy i s achi evi ng i ts maxi mum possi ble output.

14.

Refer to the above di agram, i n whi ch
Q
f

i s the ful l
-
empl oyment output. If the economy's current aggregate
demand curve i s AD
0
, i t i s experi enci ng:


A.

a posi ti ve GDP gap.

B.

a negati ve GDP gap.

C.

i nfl ati on.

D.

an adverse suppl y shock.

15.

Refer to the above di agram, i n whi ch
Q
f

i s the ful l
-
empl oyment output. If the economy's current aggregate
demand curve i s AD
0
, i t woul d be appropri ate for the governm
ent to:


A.

reduce government expendi tures and taxes by equal
-
si ze amounts.

B.

reduce government expendi tures or i ncrease taxes.

C.

i ncrease government expendi tures or reduce taxes

D.

reduce unempl oyment compensati on benefi ts.



16.

Refer to the above fi g
ure. Suppose that the economy i s currentl y operati ng at the i ntersecti on of AS and AD
2
,
and that the ful l empl oyment l evel of output i s Y. If contracti onary fi scal pol icy and accompanyi ng mul ti plier
effects move aggregate demand from AD
2

to AD
1
, what wi l l
be the effect on real GDP and the pri ce l evel?


A.

Real GDP wi l l fal l to Y and the pri ce l evel wi l l fal l to P
1
, assumi ng a ratchet effect occurs.

B.

Real GDP wi l l fal l to X and the pri ce l evel wi l l remai n unchanged, assumi ng a ratchet effect occurs.

C.

Rea
l GDP wi l l fal l to X and the pri ce l evel wi l l fal l to P
1
, assumi ng a ratchet effect occurs

D.

Real GDP wi l l fal l to Y and the pri ce l evel wi l l remai n unchanged, assumi ng a ratchet effect occurs

17.

Refer to the above fi gure. Suppose that the economy i s cur
rentl y operati ng at the i ntersecti on of AS and AD
2
,
and that the ful l empl oyment l evel of output i s Y. Because of the ratchet effect:


A.

i t i s i mpossible to enact fi scal pol icy that wi l l both reduce output to Y and reduce demand
-
pul l i nfl ati on.

B.

fi scal
pol icy wi l l need to be more contracti onary to reduce output to Y than i f no ratchet effect occurred.

C.

tax i ncreases wi l l be more effecti ve at reduci ng demand
-
pul l i nfl ati on than cuts i n government spendi ng.

D.

contracti onary fi scal pol icy that shi fts agg
regate demand to AD
1

wi l l cause real GDP to fal l bel ow i ts ful l
empl oyment l evel.


18.

Refer to the above fi gure. Suppose that the economy i s currentl y operati ng at the i ntersecti on of AS and AD
2
,
and that the ful l empl oyment l evel of output i s Y. If the g
overnment wants to move the l evel of real GDP back to Y
and reduce demand
-
pul l i nfl ati on, i t shoul d:


A.

reduce taxes or i ncrease government spendi ng.

B.

enact a contracti onary fi scal pol icy that wi l l shift aggregate demand l eft to AD
1
.

C.

enact a contract
i onary fi scal pol icy that wi l l shift aggregate demand to the l eft, but not as far as AD
1
.

D.

enact a contracti onary fi scal pol icy that wi l l shift aggregate demand to the l eft, farther l eft than AD
1
.

19.

A major advantage of the bui l t
-
i n or automati c
stabi l izers i s that they:


A.

si mul taneousl y stabilize the economy and reduce the absol ute si ze of the publ i c debt.

B.

automati cal ly produce surpl uses duri ng recessions and defi ci ts duri ng i nfl ati ons.

C.

requi re no l egi sl ative acti on by Congress to be made

effecti ve.

D.

guarantee that the Federal budget wi l l be bal anced over the course of the busi ness cycl e.

20.

The amount by whi ch government expendi tures exceed revenues duri ng a parti cul ar year i s the:


A.

publ i c debt.

B.

budget defi ci t.

C.

ful l
-
empl oyment
.

D.

GDP gap.




















KEY:

1.

C

2.

A

3.

C

4.

A

5.

C

6.

B

7.

A

8.

D

9.

A

10.

D

11.

D

12.

A

13.

C

14.

B

15.

C

16.

B

17.

D

18.

C

19.

C

20.

B