41.Which of the following is a valid statement about the Keynesian and classical models of the macroeconomy?
A. Fiscal policy will affect output in the Keynesian model, but only the price level in the classical model.
B. The economy adapts quickly to demand shocks under the Keynesian model, but not under the classical model.
C. A sharp decrease in the value of a nation's currency will lead to higher price levels in the Keynesian model, but not in the classical model.
D. Increases in autonomous expenditure will increase aggregate demand in the Keynesian model, but not in the classical model.
E. An increase in the productive capacity of an economy will result in greater output in both the Keynesian and classical models.
42. Suppose the government spends $500M on a project that has absolutely no value to the country. Which statement about this project is correct?
A. If taxes were raised $500M to fund this project, the Keynesian model predicts that this will have no net effect on output in the economy.
B. If the government raised the money for this project by printing $500M in bonds and selling them to the Fed, the effect is exactly the same as if they sold the bonds to households.
C. The project will increase aggregate supply because it will increase the total quantity of goods and services supplied in the economy.
D. If the marginal propensity to save in the economy is equal to 0.25, the Keynesian model predicts that this project will result in a $2000M increase in GDP.
E. Under the assumptions of the classical model, the result of this project will be increased in both the price level and equilibrium GDP.
43. A particular economy has a consumption of $400M, a government deficit of $100M, taxes of $250M, and income of $800M. Which of the following statements must be true?
A. If the investment is zero, there is no foreign trade imbalance.
B. If the trade surplus is $50M, the investment will be equal to $100M.
C. If the capital account surplus is $50M, the investment will be equal to $100M.
D. If the trade surplus is $100M, there will be an investment.
E. None of the above statements is necessarily true.
44. Which piece of information would be least useful in trying to predict the effect of a $700M increase in government spending on equilibrium GDP?
A. marginal propensity to save
B. The slope of the aggregate supply curve
C. Whether taxes are raised to pay for the spending increase
D. The current level of structural unemployment
E. Whether the bonds used to finance the spending were sold to households or to the Fed
45.Which of the statements relating to full employment and full capacity is false?
A. At full employment there is no frictional unemployment; at full capacity, there is no structural unemployment.
B. The full-employment level of output is less than the full capacity level of output.
C. At full employment there is no cyclical unemployment; at full capacity, there is no frictional unemployment.
D. A government spending increase will result in increased output and price levels at full employment, but only increased price levels at full capacity.
E. In the long run, an economy that starts at full capacity will move to full employment.
46. What would be the effect of a law requiring that government spending equal tax revenues in each year?
A. Fiscal policy would be completely eliminated as a tool to control the macroeconomy.
B. Monetary policy would be completely eliminated as a tool to control the macroeconomy.
C. Fluctuations in GDP would become less severe.
D. The government spending multiplier would be effectively set to 1.0.
E. The marginal propensity to consume would be cut in half.
47.The total value of T-bonds, including T-notes and T-bills, in existence at any point in time, is:
A. The federal government spending deficit.
B. The trade deficit.
C. Less than government spending.
D. Necessarily less than GDP.
E. The national debt.
48. Which of the following would be a valid statement about a government plan to eliminate a trade deficit
A. A decrease in the trade deficit will decrease investment in the country.
B. An effective strategy would be to increase the money supply and increase the value of the national currency.
C. An effective strategy would be to increase interest rates and increase the value of the national currency.
D. This could be achieved through dramatically increasing aggregate supply.
E. The increase in net exports will result in a decrease in aggregate demand.
49. Crowding out has the effect(s) of:
A. Reducing the effectiveness of monetary policy if crowding out occurs in financial markets.
B. Decreasing the value of a nation’s currency if the crowding out occurs in financial markets.
C. Increasing the effectiveness of fiscal policy if the crowding out occurs in financial markets and increasing the effectiveness of monetary policy if the crowding out occurs in product markets.
D. Decreasing the effectiveness of fiscal policy if the crowding out occurs in financial markets and decreasing the effectiveness of both fiscal and monetary policy if the crowding out occurs in product markets.
E. Increasing the price of government bonds if the crowding out occurs in financial markets.
50. Which of the following will make crowding out in credit markets more severe?
A. A steep investment demand curve
B. A global credit market
C. Tax increases
D. A steep supply curve in the loanable funds market
E. None of the above
