Multiple Choice Questions:
1. After briefly running federal surpluses, in 2001 the budget returned to deficits because of?
a. A recession.
b. The war on terrorism.
c. A tax cut.
d. All of the above.
2. Higher budget deficits would tend to?
a. Raise interest rates.
b. Reduce investment.
c. Reduce the growth rate of the capital stock.
d. Do all of the above.
3. If the government budget deficit became a budget surplus because of cuts in federal government spending, other things being equal, which of the following would fall in the short run?
a. Interest rates.
b. Investment.
c. Unemployment.
d. The money supply.
e. None of the above would fall in the short run.
4. Deficit reduction will tend to
a. Decrease real output in both the short run and long run.
b. Decrease real output in the short run, but increase real output in the long run.
c. Increase real output in both the short run and long run.
d. Increase real output in the short run, but decrease real output in the long run.
5. A policy which increased the federal government deficit would tend to increase which of the following in the short run, other things being equal?
a. Aggregate demand.
b. Real output.
c. The price level.
d. Employment.
e. All of the above.
6. Starting at full employment, if MPC = 2/3, an increase in government purchases of $10 billion would lead AD to _____________ and _____________ real output in the long run?
a. Increase $30 billion; increase.
b. Increase $30 billion; not change.
c. Decrease $30 billion; decrease.
d. Decrease $30 billion; not change.
e. None of the above
7. A decrease in government purchases will do which of the following in the long run?
a. Increase unemployment.
b. Decrease real output.
c. Decrease the price level.
d. All of the above.