Economic Policy Analysis
Exam Solutions
Course Introduction
Economic Policy Analysis is a course designed to equip students with the analytical tools and frameworks necessary to evaluate and assess the impact of a wide range of economic policies. The curriculum emphasizes the examination of real-world policy issues through the lens of economic theory, empirical evidence, and cost-benefit analysis. Students learn to critically analyze government interventions in markets, fiscal and monetary policies, and regulatory frameworks, evaluating their effects on efficiency, equity, and economic growth. By the end of the course, students will be prepared to apply rigorous economic reasoning to contemporary policy challenges and to communicate their analyses to both specialized and general audiences.
Recommended Textbook macroeconomics principles and policy 12th edition by william j. baumol
Available Study Resources on Quizplus
20 Chapters
4205 Verified Questions
4205 Flashcards
Source URL: https://quizplus.com/study-set/964 Page 2
Chapter 1: What Is Economics?
Available Study Resources on Quizplus for this Chatper
227 Verified Questions
227 Flashcards
Source URL: https://quizplus.com/quiz/19065
Sample Questions
Q1) Marginal analysis involves looking at the extra costs involved in a decision.
A)True
B)False
Answer: True
Q2) Economists disagree on most economic issues facing an economy.
A)True
B)False
Answer: False
Q3) If movement along a graph causes the value on the vertical axis to rise by 5 units and the value on the horizontal axis to fall by 10 units,the slope of the function is A)5.
B) .5.
C) 2.
D) 72.
Answer: B
Q4) A horizontal line always has a slope of one.
A)True
B)False Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: The Economy: Myth and Reality
Available Study Resources on Quizplus for this Chatper
150 Verified Questions
150 Flashcards
Source URL: https://quizplus.com/quiz/19066
Sample Questions
Q1) The U.S.economy is unique for both its size and prosperity.
A)True
B)False
Answer: True
Q2) The United States is a fairly good example of
A) a mixed economy.
B) a pure market system.
C) a government-dominated economy.
D) a manufacturing economy.
E) a transitioning economy.
Answer: A
Q3) An open economy produces most of the goods and services that it needs,with few imports and exports.
A)True
B)False
Answer: False
Q4) Government spending plays no role in meeting our social and public needs.
A)True
B)False
Answer: False
Page 4
To view all questions and flashcards with answers, click on the resource link above.
Chapter 3: The Fundamental Economic Problem: Scarcity and Choice
Available Study Resources on Quizplus for this Chatper
250 Verified Questions
250 Flashcards
Source URL: https://quizplus.com/quiz/19067
Sample Questions
Q1) If the U.S.government decides to increase military spending,one opportunity cost will be lower spending on education.
A)True
B)False
Answer: True
Q2) All actions and purchases,even those of wealthy people,involve a sacrifice.
A)True
B)False
Answer: True
Q3) Which of the following does not determine the position and shape of a society's PPF?
A) physical resources
B) price level
C) skills and technology
D) past construction of factories and research
Answer: B
Q4) Opportunity cost can always be measured in money terms.
A)True
B)False
Answer: False
Page 5
To view all questions and flashcards with answers, click on the resource link above.
Chapter 4: Supply and Demand: An Initial Look
Available Study Resources on Quizplus for this Chatper
308 Verified Questions
308 Flashcards
Source URL: https://quizplus.com/quiz/19068
Sample Questions
Q1) The position of a demand curve is unaffected by changes in the price of the good.
A)True
B)False
Q2) Both demand and supply curves usually have positive slopes.
A)True
B)False
Q3) At equilibrium,quantity demanded equals quantity supplied.
A)True
B)False
Q4) A market will experience a ____ when the price is above equilibrium and a ____ when the price is below equilibrium.
A) shortage, shortage
B) surplus, surplus
C) shortage, surplus
D) surplus, shortage
Q5) A surplus will tend to occur at which price in Figure 4-21?
A) P1
B) P2
C) P3
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: An Introduction to Macroeconomics
Available Study Resources on Quizplus for this Chatper
211 Verified Questions
211 Flashcards
Source URL: https://quizplus.com/quiz/19069
Sample Questions
Q1) The horizontal axis on the aggregate demand-aggregate supply model measures
A) the price of the specific product produced.
B) the level of total output.
C) the price level.
D) the level of employment.
Q2) The successes of the 1960s were ascribed to the effects of
A) classical policies from the 1800s.
B) classical policies from the 1930s.
C) classical policies from the 1950s.
D) Keynesian policies from the 1930s.
E) Keynesian policies from the 1950s.
Q3) Macroeconomics stresses
A) resource allocation and income distribution.
B) inflation and unemployment.
C) resource allocation and inflation.
D) unemployment and income distribution.
Q4) Describe some of the steps used to combat inflation.What are their side-effects?
Q5) Production for war and environmental clean-up services are not included in GDP.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: The Goals of Macroeconomic Policy
Available Study Resources on Quizplus for this Chatper
207 Verified Questions
207 Flashcards
Source URL: https://quizplus.com/quiz/19070
Sample Questions
Q1) Economists generally assume that faster economic growth is negative for society.
A)True
B)False
Q2) The distinction between real and nominal rates of interest is understood by A) most public policy makers.
B) the majority of the American population.
C) a majority of legislators.
D) relatively few Americans.
Q3) Workers are generally in a better position to protect themselves from inflation in comparison to retired persons because workers' incomes
A) are more likely to be fixed.
B) are more likely to be variable.
C) always rise during inflation.
D) are guaranteed by the federal government.
Q4) Structural unemployment arises when
A) marginal productivity of labor becomes zero.
B) there is a cyclical change in the economy.
C) jobs are eliminated by changes in the economy.
D) people change their jobs.
Q5) Distinguish between real rate of interest and nominal rate of interest.
Page 8
To view all questions and flashcards with answers, click on the resource link above.
Chapter 7: Economic Growth: Theory and Policy
Available Study Resources on Quizplus for this Chatper
223 Verified Questions
223 Flashcards
Source URL: https://quizplus.com/quiz/19071
Sample Questions
Q1) Which department in a modern university would most likely advertise itself as a promoter of modern growth theory?
A) computer science
B) accounting
C) economics
D) history
Q2) The prices of telecommunications services have decreased due to productivity increases.
A)True
B)False
Q3) The wage premium in the United States has risen consistently starting in A)1973.
B)1975.
C)1978.
D)1983.
Q4) In general,as the amount of labor input decreases,the amount of output
A) increases.
B) decreases.
C) remains constant.
D) decreases only if the capital stock also decreases.
Page 9
To view all questions and flashcards with answers, click on the resource link above.
Chapter 8: Aggregate Demand and the Powerful Consumer
Available Study Resources on Quizplus for this Chatper
214 Verified Questions
214 Flashcards
Source URL: https://quizplus.com/quiz/19072
Sample Questions
Q1) If the consumption function shifts downward,which of the following is the most likely cause?
A) Consumers become more optimistic.
B) The price level increased.
C) Consumers' incomes increase.
D) Real interest rates decrease.
Q2) U.S.imports rise when income in the United States increases.
A)True
B)False
Q3) Most people base their current consumption spending at least partially on A) short-run debt.
B) long-run debt.
C) long-run real interest rates.
D) long-run income.
Q4) The marginal propensity to consume is calculated by dividing the change in consumer spending by the change in disposable income.
A)True
B)False
Page 10
Q5) What is disposable income? How is it calculated?
Q6) Discuss the major determinants of net exports.
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 9: Demand-Side Equilibrium: Unemployment or
Inflation?
Available Study Resources on Quizplus for this Chatper
211 Verified Questions
211 Flashcards
Source URL: https://quizplus.com/quiz/19073
Sample Questions
Q1) An increase in autonomous consumption has the same equilibrium effect as a(n) A) decrease in investment.
B) increase in investment.
C) decrease in net exports.
D) increase in taxes.
Q2) By definition,total production must always equal total A) sales.
B) demand.
C) purchases.
D) income.
Q3) The full employment level of GDP is sometimes referred to as "potential GDP." A)True
B)False
Q4) Each C + I + G + (X IM)expenditure schedule is drawn assuming a specific A) income level.
B) spending level.
C) production level.
D) price level.
Page 12
Q5) Why does the aggregate demand curve slope downward?
Q6) Define the terms recessionary gap and inflationary gap.Why do they occur?
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 10: Bringing in the Supply Side: Unemployment and Inflation?
Available Study Resources on Quizplus for this Chatper
223 Verified Questions
223 Flashcards
Source URL: https://quizplus.com/quiz/19074
Sample Questions
Q1) Recessionary gaps are associated with output below potential and high unemployment rates.
A)True
B)False
Q2) The aggregate supply curve shows the relationship between ____ and ____,holding all other factors constant.
A) price level; quantity of real GDP supplied
B) price level; supply of nominal GDP
C) nominal GDP; price level of real GDP
D) price level; amount of nominal GDP supplied
Q3) Which of the following events will lead to an inward shift of the aggregate supply curve?
A) an increase in the price level
B) an increase in consumer spending
C) an increase in labor productivity
D) an increase in wage rates
Q4) Input prices are fixed for a period of time and this causes firms to increase production as prices increase.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 11: Managing Aggregate Demand: Fiscal Policy
Available Study Resources on Quizplus for this Chatper
205 Verified Questions
205 Flashcards
Source URL: https://quizplus.com/quiz/19075
Sample Questions
Q1) The oversimplified formula for the multiplier yields a number that is too large due to the exclusion of
A) variable imports.
B) changes in the price-level.
C) income taxes.
D) All of the above.
Q2) Which of the following observations is t?
A) Tax changes have no impact on the consumption schedule.
B) Tax reduction shifts the consumption schedule upward.
C) Changes in taxes have a multiplier effect on equilibrium GDP on the supply side.
D) Tax increases increase equilibrium GDP.
Q3) Which of the following observations is t?
A) Increase in taxes shifts the consumption schedule upward.
B) Tax reductions increase equilibrium GDP.
C) Taxes reduce total spending directly.
D) Taxes do not have a multiplier effect on equilibrium GDP.
Q4) According to supply siders,tax cuts should increase aggregate supply.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 12: Money and the Banking System
Available Study Resources on Quizplus for this Chatper
219 Verified Questions
219 Flashcards
Source URL: https://quizplus.com/quiz/19076
Sample Questions
Q1) One intention of deposit insurance is to reduce the danger of A) excess lending.
B) excess profits.
C) risky lending.
D) bank runs.
E) All of the above are correct.
Q2) One difference between the assets included in M1 and those added to calculate M2 is that items in M1 are
A) better stores of value than those added to compute M2.
B) more liquid than those added to compute M2.
C) less liquid than those added to compute M2.
D) larger than those added to compute M2.
Q3) If people begin to hold more cash,the money multiplier process will
A) increase in intensity.
B) remain the same.
C) decrease in actual size.
D) cause larger amounts of excess reserves.
Q4) What is the criticism leveled against deposit insurance by the FDIC?
Q5) Explain the "too big to fail" doctrine.
Q6) What is a barter system? What are the drawbacks of this system?
Page 16
To view all questions and flashcards with answers, click on the resource link above.
Chapter 13: Monetary Policy: Conventional and
Unconventional
Available Study Resources on Quizplus for this Chatper
205 Verified Questions
205 Flashcards
Source URL: https://quizplus.com/quiz/19077
Sample Questions
Q1) As interest rates rise,banks seek to decrease their loans and,thereby,shrink the money supply.
A)True
B)False
Q2) Technically,the Federal Reserve district banks are corporations whose stockholders are the
A) state governments in each district.
B) citizens of the United States.
C) Departments of Treasury and Commerce.
D) member banks.
Q3) If the Fed buys $5 million in government bonds,how much will the money supply change?
A) It will increase by $5 million.
B) It will increase by more than $5 million.
C) It will decrease by $5 million.
D) It will decrease by more than $5 million.
Q4) Explain the relationship between interest rates and (1)investments in housing,and (2)business investments.
To view all questions and flashcards with answers, click on the resource link above. Page 17
Q5) Describe the origins of the Fed and the arguments about the independence of the Fed.
Chapter 14: The Financial Crisis and the Great Recession
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/19078
Sample Questions
Q1) Despite both monetary and fiscal policy actions,real GDP declined at an annualized rate of 6% during the last quarter of 2008 and the first quarter of 2009.
A)True
B)False
Q2) An increase in the price of a particular bond implies an increase in the interest rate for that bond.
A)True B)False
Q3) The Lehman Brothers bankruptcy triggered a financial panic that featured
A) an increase in Treasury interest rates and an increase in most other interest rates.
B) an increase in Treasury interest rates and a decrease in most other interest rates.
C) a decrease in Treasury interest rates and an increase in most other interest rates.
D) a decrease in Treasury interest rates and a decrease in most other interest rates.
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 15: The Debate over Monetary and Fiscal Policy
Available Study Resources on Quizplus for this Chatper
214 Verified Questions
214 Flashcards
Source URL: https://quizplus.com/quiz/19079
Sample Questions
Q1) Many economists maintain that
A) the aggregate supply curve is nearly horizontal at low levels of real GDP.
B) the aggregate supply curve is nearly vertical at very high levels of real GDP.
C) any change in aggregate demand will have most of its effect on output when economic activity is low but on prices when the economy is near full employment.
D) All of the above are correct.
Q2) If the Fed's monetary policy causes a substantial decrease in interest rates,what is the most likely impact on velocity?
A) It will decrease.
B) It will increase.
C) It will remain constant.
D) Velocity is unrelated to interest rates.
Q3) Which of the following is an example of active fiscal policy?
A) Income tax revenues rise in an inflationary period.
B) Income tax revenues fall in a recession.
C) Congress passes a major tax increase in an inflationary period.
D) Unemployment benefits increase in a recession.
Q4) How does government expenditure discourage some private investment?
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 16: Budget Deficits in the Short and Long Run
Available Study Resources on Quizplus for this Chatper
210 Verified Questions
210 Flashcards
Source URL: https://quizplus.com/quiz/19080
Sample Questions
Q1) Budget deficits are inflationary when
A) the Federal Reserve contracts the money supply.
B) the economy has lots of slack and the aggregate supply curve is horizontal.
C) the economy is at full employment and the aggregate supply curve is vertical.
D) private citizens buy the bonds to finance the debt.
Q2) The budget deficits of the 1980s and early 1990s differ from others in the post-World War II era in that they were
A) a result of the Fed rather than a change in fiscal policy.
B) temporary rather than structural, and pose no threat to the economy.
C) not contracted to fight a war or end a recession.
D) contracted as part of a program to plan the economy.
Q3) Under a balanced budget policy,a sharp rise in GDP will cause
A) no serious budget changes.
B) a tax cut or an increase in expenditures.
C) a tax increase or expenditure cut.
D) tax receipts to exceed government expenditures.
Q4) Differentiate between "off-budget" deficit and the "on-budget" deficit.
Q5) What does it mean to "monetize the deficit"? Why is it important in discussions of fiscal policy? Use an appropriate diagram to illustrate your answer.
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 17: The Trade Off between Inflation and Unemployment
Available Study Resources on Quizplus for this Chatper
214 Verified Questions
214 Flashcards
Source URL: https://quizplus.com/quiz/19081
Sample Questions
Q1) In Figure 17-8,which of the following movements illustrates the response of the economy to an increase in aggregate demand when expectations are "rational"?
A) C to A
B) C to B
C) C to D
D) C to E
Q2) The rational expectations hypothesis is impeccably logical,but inconsistent with the facts.
A)True
B)False
Q3) The main process by which a recessionary gap is eliminated is a(n)
A) increase in wages that shifts the aggregate supply curve inward.
B) drop in wages that shifts the aggregate demand curve inward.
C) increase in wages that shifts the aggregate demand curve outward.
D) drop in wages that shifts the aggregate supply curve outward.
Q4) Every year from 1954 to 1984,the U.S.economy was characterized by higher output and lower prices.
A)True
B)False
21
To view all questions and flashcards with answers, click on the resource link above.
Chapter 18: International Trade and Comparative Advantage
Available Study Resources on Quizplus for this Chatper
226 Verified Questions
226 Flashcards
Source URL: https://quizplus.com/quiz/19082
Sample Questions
Q1) Which of the following statements regarding the cheap foreign labor argument is correct?
A) If there is an abrupt change in foreign competition that severely penalizes American workers, the U.S. government should immediately adopt protectionist measures.
B) In the long run, labor will be cheap (wages are low) in those nations where labor is most productive.
C) If workers in other countries are willing to supply their products with little compensation, this must ultimately raise the standard of living of the average American worker.
D) American workers can never suffer from foreign competition since our monetary and fiscal policies always produce high employment at home.
Q2) A quota sets the maximum amount of a good that is permitted into a country. A)True
B)False
Q3) Suppose that a tariff is imposed on imports of minivans.Show graphically what the effect is in terms of price and quantity of imports.Be sure that your graph is completely and correctly labeled.What determines how much of the tariff is paid by the buyers of the minivans?
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 19: The International Monetary System: Order or Disorder?
Available Study Resources on Quizplus for this Chatper
213 Verified Questions
213 Flashcards
Source URL: https://quizplus.com/quiz/19083
Sample Questions
Q1) A strong dollar helps U.S.exporters and hurts importers.
A)True
B)False
Q2) There is an exchange rate between
A) every pair of currencies.
B) the world's major currencies but not between the currencies of less-developed countries.
C) currencies on a fixed-exchange rate system but not for those on a floating-rate system.
D) the currencies of the European Union but not for the nations outside the European Union.
Q3) An area in which the United States has had a sizable surplus in its balance of payments is sales of ____ to foreigners.
A) goods
B) energy
C) assets
D) automobiles
Q4) What is the euro and why has it been created? How has its value changed relative to the U.S.dollar since its inception?
Page 23
To view all questions and flashcards with answers, click on the resource link above.
Chapter 20: Exchange Rates and the Macroeconomy
Available Study Resources on Quizplus for this Chatper
214 Verified Questions
214 Flashcards
Source URL: https://quizplus.com/quiz/19084
Sample Questions
Q1) An increase in the U.S.price level relative to the price level of U.S.trading partners will cause the aggregate expenditures function in the United States to
A) shift up.
B) shift down.
C) get flatter.
D) get steeper.
Q2) Which of the graphs in Figure 20-8 illustrates the AD-AS shifts associated with an expansionary monetary policy?
A) 1
B) 2
C) 3
D) 4
Q3) In the mid-1990s,real interest rates fell in the United States.This was the result of budget deficit
A) increases and tighter monetary policy.
B) increases and looser monetary policy.
C) reductions and looser monetary policy.
D) reductions and tighter monetary policy.
Q4) How do the fluctuations in the exchange rate influence the domestic price level?
To view all questions and flashcards with answers, click on the resource link above. Page 24