Macroeconomic Policy Tools Mcqs for Preparation

Which of the following statements about stabilization policy is not true ?

A. Many economists prefer automatic stabilizers because they affect the economy with a shorter lag than activist stabilization policy
B. None of these answers are true
C. Long lags enhance the ability of policy makers to fine tune the economy
D. When policy makers implement activist stabilization policies there is a significant risk that their policies may actually have a destabilizing effect

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When an increase in government purchases increases the income of some people, and those people spend some of that increase in income on additional consumer goods, we have seen a demonstration of ?

A. The multiplier effects
B. supply side economics
C. None of these answers
D. The crowding out effect

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Which of the following statements regarding taxes is correct ?

A. Most economists believe that in the short run the greatest impact of a change in taxes is on aggregate supply, not aggregate demand
B. An increase in taxes shifts the aggregate demand curve to the right
C. A decrease in taxes shifts the aggregate supply curve to the left
D. A permanent change in taxes has a greater effect on aggregate demand than a temporary change in taxes.

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Suppose a wave of investor and consumer optimisms has increased spending so that the current level of input exceeds the long-run natural rate If policy makers choose to engage in activist stabilization policy they should ?

A. decrease government spending Which the shifts the aggregate demand curve to the left
B. decrease taxes, which shifts the aggregate demand curve to the right
C. decrease taxes, which shifts the aggregate demand curve to the left
D. decrease government spending which shifts the aggregate demand curve to the right

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If the marginal propensity of consume MPC is 0.75 the value of the multiplier is ?

A. 4
B. 7.5
C. 5
D. 0.75

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Suppose a wave of investor and consumer pessimism in the USA causes a reduction in spending If the US federal Reserve (Which has a broader remit than the Bank of England Which is charged only with controlling inflation) chooses to engage in activist stabilization policy it should ?

A. Increase government spending and decrease taxes
B. decrease the money supply
C. decrease government spending and increase taxes
D. decrease interest rates

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In the market for real output, the initial effect of an increase in the money supply is to ?

A. shift the aggregate supply curve to the right
B. shift the aggregate supply curve to the left
C. shift the aggregate demand curve to the left
D. shift the aggregate demand curve to the right

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When supply and demand for money are expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis an increase in the price level ?

A. shifts money demand to the right and increases the interest rate
B. None of these answers
C. shifts money demand to the right and decreases the interest rate
D. shifts money demand to the left and increases the interest rate
E. shifts money demand to the left and decrease the interest rate

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Keynes liquidity preference theory of the interest rate suggests that the interest rate is determined by ?

A. aggregate supply and aggregate demand
B. the supply and demand for loanable funds
C. the supply and demand for money
D. the supply and demand for labor

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