Sample Questions for Final

Sample Questions for Final - Sample Questions for Final The...

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Sample Questions for Final The set of objective type questions is only a preview. Along with this, you should make sure to cover in detail all the HWs preceding the Final. The essay questions and numerical type questions on the Final will be drawn ONLY out of these set of questions. There is thus no element of surprise on the second half of the exam. However, you should start thinking about the answers to these questions well in advance and discuss with me in case of difficulties. Chapter 10 1. Suppose the government attempts to stimulate the economy by increasing purchases without increasing taxes. Which of the following statements is most likely to be accepted by someone who believes in crowding out? a. The government's actions will have their intended effect. b. The government's actions will cause businesses to become more optimistic about the economy, and they will increase their output even more than the government had intended. c. The government's actions will raise interest rates, causing decreased investment and consumption, and the economy will not expand as much as the government had intended. d. This is a trick question, because the federal government is required by law to increase taxes by the same amount as it increases expenditures. ANS: C 2. According to new classical economists, crowding out that results from a budget deficit will a. reduce future taxes. b. increase private consumption. c. increase private saving. d. increase real interest rates. ANS: C 3. Some economists believe that permanently lower marginal income tax rates __________ the incentive to work and thus shift __________. a. increase; LRAS to the right b. increase; AD to the right c. increase; SRAS to the left d. decrease; LRAS to the right e. decrease; AD to the left ANS: A 4. Under a constant growth rate of money rule of 7 percent in an economy in which Real GDP grows at an average rate of 5 percent and velocity is constant, the inflation rate is a. 2 percent. b. -2 percent. c. 35 percent. d. -35 percent. e. constant at zero. ANS: A 5. Suppose a constant money growth rate rule of 3 percent is being considered. If it is estimated that average annual Real GDP growth is 2.5 percent and velocity is rising by 1 percent a year on average, the rule would produce an average annual rate of inflation of __________ percent. a. 1.5 b. 2.5 c. 3.0
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d. 6.5 ANS: A 1. Why is crowding out an important issue in the debate over the use of fiscal policy? 2. Some economists argue for the use of fiscal policy to solve economic problems; some argue against its use. What are some of the arguments on both sides? 3. Suppose the combination of more accurate data and better forecasting techniques made it easy for the Fed to predict a recession 10 to 16 months in advance. Would this strengthen the case for activism or non-activism? Explain your answer.
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This note was uploaded on 11/28/2010 for the course ECON 201 taught by Professor Dr.sharma during the Spring '08 term at Ohio State.

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Sample Questions for Final - Sample Questions for Final The...

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