Economists and policy makers questioned the effectiveness of discretionary fiscal policy during the 1970s for all the following reasons except:
a. the difficulty of estimating the natural rate of unemployment.
b. the time lags involved in implementing fiscal policy.
c. the existence of possible feedback effects of fiscal policy on aggregate supply.
d. the distinction between current and permanent income.
e. the possible feedback effects of fiscal policy on aggregate demand.
QUESTION 2Given the following hypothetical data where C = 3,000; I = 1,200; G = 2,000; X M = 500; depreciation = 200; transfer payments = 800, net domestic product is _____.
a. 5,500
b. 5,700
c. 6,200
d. 6,400
e. 6,900
QUESTION 3The profit-maximizing employment level for a monopsonist occurs where:
a. wage = MFC.
b. wage = MRP.
c. price = wage.
d. wage = TWC.
e. MRP = MFC
QUESTION 4Which of the following is not a weakness of fiscal policy as a tool of economic stabilization?
a. It is ineffective in dealing with stagflation.
b. Its correct implementation depends on an accurate estimate of potential output.
c. It is subject to lags.
d. It affects only aggregate demand but does not have any impact on aggregate supply.
e. Households may not respond to changes they perceive as permanent.
QUESTION 5Wage and MFC differ for a monopsonist because:
a. the monopsonist is forced to pay a wage greater than the worker's MFC.
b. the monopsonist must accept the market wage rate.
c. workers are not as efficient when employed by a monopsonist.
d. any wage increase applies to all workers, not just to the next hired.
e. wage rate decreases force workers to work longer hours.
QUESTION 6Which of the following is a difference between net domestic product (NDP) and gross domestic product (GDP)?
a. GDP includes the cost of polluting the environment, while NDP does not.
b. GDP excludes net taxes, while NDP includes it.
c. GDP excludes that part of the capital stock used up in the production process, while NDP includes it.
d. GDP includes all government spending, while NDP excludes government spending.
e. GDP includes that part of the capital stock used up in the production process, while NDP does not.
QUESTION 7Which of the following is not a weakness of fiscal policy?
a. Implementation of policy is difficult.
b. Time lags in fiscal policy are long and variable.
c. Fiscal policy works only during periods of stagflation.
d. Fiscal policy often affects only current income, but many economic decisions are made on the basis of permanent income.
e. Fiscal policy might have undesirable long-term effects on short-run aggregate supply.
QUESTION 8Depreciation refers to:
a. the value of leisure goods.
b. changes in exchange rates.
c. income that we earn but do not receive.
d. investment undertaken merely to replace worn-out capital.
e. the effects of government subsidy programs.
Quick Reply
