The presence of the automatic stabilizers means an increase in the budget deficit will be automatically experienced during an economic expansion whereas a budget surplus will be automatically experienced during a recession.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 2Which of the following models emphasizes the importance of credible, predictable government policies for maintaining full employment with low inflation?
a. The monetarist model.
b. The Keynesian model.
c. The supply-side model.
d. The rational expectations model.
QUESTION 3If the nominal interest rate is 5 percent and there is no inflation, then the real interest rate:
a. exceeds 5 percent.
b. is less than 5 percent.
c. is 5 percent.
d. is zero.
QUESTION 4Automatic stabilizers combine changes in discretionary fiscal policy with changes in government spending and taxes influenced by the business cycle in order to stabilize the economy.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 5Preannounced, stable policies to achieve a low and constant money supply growth and a balanced federal budget are therefore the best way to lower the inflation rate. This statement best illustrates the:
a. Keynesian theory.
b. rational expectations theory.
c. incomes policy.
d. supply-side theory.
QUESTION 6Last year the Olsen family earned 70,000 . This year their income is 77,000 . In an economy with an inflation rate of 8 percent, we can conclude that the Olsen's nominal income:
a. and real income both increased.
b. and real income both decreased.
c. increased, but their real income decreased.
d. decreased, but their real income increased.
QUESTION 7A simultaneous 10 million increase in both taxes and government spending will have no net effect on aggregate demand.
a. True
b. False
Indicate whether the statement is true or false
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