Homework #2

Multiple ChoiceIdentify the choice that best completes the statement or answers the question.____ 1. Suppose the marginal propensity to consume is 0.50. All else equal, a $1 million increase in income taxes

would lead to a/an __________ in real GDP of __________.a. increase of $2 millionb. increase of $500,000c. decrease of $2 milliond. decrease of $500,000

____ 2. After WWI, foreign countries increased their tariffs on US goods. All else equal, this increase in tariffs would have caused the United States’ equilibrium price level and unemployment, in the long run, to respectivelya. increase, decreaseb. decrease, decreasec. increase, increased. None of the above.

____ 3. During which period did Keynesian economic policy trump Classical economic policy?a. 1950sb. 1960sc. WWIId. Great Depression

____ 4. Education is associated with positive externalities. The Elementary and Secondary Education Act of 1965 would have caused the equilibrium quantity of education services toa. decrease away from the efficient allocation.b. increase towards the efficient allocation.c. decrease towards the efficient allocation.d. None of the above.

____ 5. The removal of wage and price controls by President Truman in 1946 immediately caused prices and output toa. decrease, increaseb. increase, decreasec. increase, increased. decrease, decrease

____ 6. The elasticity of labor supply for the rich, compared with the poor, is relatively __________. All else equal, the rich are therefore __________ tax sensitive.a. smaller, moreb. smaller, lessc. larger, lessd. larger, more

____ 7. Under the Coolidge administration, government expenditure as a percentage of GDP __________ and the government ran budget __________.a. increased, surplusesb. decreased, surplusesc. decreased, deficitsd. increased, deficits

____ 8. In the United States, the Ford-McCumber Tariff Act of 1922 caused producer surplus for firms competing with imports toa. decreaseb. remain unchangedc. increased. Any of the above could be true.

____ 9. The Revenue Act of 1921, under President Harding, decreased the top marginal income tax rate on the rich. All else equal, the United States was on the left-hand side of the Laffer curve for the rich. Short run tax revenues and outputa. increased, increasedb. increased, decreasedc. decreased, decreasedd. decreased, increased

____ 10. During the 1920s, the Federal Reserve lowered the discount rate. All else equal, this action caused the money supply and interest rates, in the short run, toa. increase, increaseb. decrease, increasec. increase, decreased. decrease, decrease

____ 11. All else equal, the Revenue and Expenditure Control Act of 1968 would have caused the equilibrium price level and output, in the long run, toa. increase, not changeb. decrease, not changec. decrease, decreased. None of the above.

____ 12. Suppose the Federal Reserve conducts an open market sale. All else equal, interest rates and unemployment in the economy, in the short run, will respectivelya. increase, decreaseb. increase, increasec. decrease, increased. decrease, decrease

____ 13. The National Security Act of 1947 created thea. Internal Revenue Serviceb. Department of Defensec. Department of Homeland Securityd. All of the above.

____ 14. During the Korean War, the Federal Reserve conducted monetary policy that wasa. expansionary to help the government finance the warb. at times expansionary and other times contractionary to target low, predictable inflationc. expansionary to lower the rate of unemploymentd. contractionary to help combat inflation resulting from the war

____ 15. Which historic act contributed most greatly to the housing bubble bursting from 2006 to 2008?a. GI Bill of 1944b. Civil Rights Act of 1968c. Garn-St. Germain Depository Institutions Act of 1982d. Both B and C are correct.

____ 16. During the 1930s, prices and wages were sticker than today. Given this information, monetary policy in the 1930s was __________ effective than today.a. lessb. equallyc. mored. Any of the above can be true.

____ 17. The elasticity of labor supply for the rich is inelastic. Under supply-side economic theory, the Kennedy tax cut for the top marginal income tax rate of 91% to 70%, all else equal, would have caused short run aggregate supply toa. increase by a large amountb. decrease by a large amountc. increase by a small amountd. decrease by a small amount

____ 18. Which type of loan is associated with borrowers whose key documentation is missing?a. subprimeb. ALT-Ac. All of the above.d. None of the above.

____ 19. The Kennedy tax cuts required the government to finance more of its spending through budget deficits. All else equal, these deficits would have caused interest rates and saving, respectively, toa. decrease, increaseb. increase, decreasec. increase, increased. None of the above.

____ 20. The Kennedy Tax Cuts were believed toa. increase government tax revenueb. have a multiplier effect on aggregate demandc. directly affect short run aggregate supplyd. All of the above.

____ 21. During the 1920s, the demand for agricultural goods was inelastic. As more farmers adopted automobiles, the prices for agricultural goods and revenue to farmersa. increased, decreasedb. decreased, increasedc. increased, increasedd. decreased, decreased

____ 22. What common technique was effectively used during the early 1960s by civil rights leaders?a. speakeasiesb. sit-insc. strikesd. None of the above.

____ 23. Suppose Henry Ford decides to use efficiency wages to reduce shirking in 1925. The market wage other firms are paying is $10, each worker gains $5 from shirking, and probability of detection is 20%. Assuming a one-period problem, Henry Ford should pay at leasta. $20b. $25c. $35d. $50

____ 24. The Keynesian explanation of the Great Depression would result in interest rates, over the period,a. fallingb. risingc. remaining unchangedd. None of the above.

____ 25. The Stock Market Crash of 1929 was a direct result ofa. decreased investment by firms leading to a surplus of savingb. contractionary monetary policy by the Federal Reservec. over-extension of credit and margin trading accountsd. poor management by private banks

____ 26. Under President Herbert Hoover, the Norris-La Guardia Anti-Injection Act of 1932a. increased labor union power, leading to higher levels of unemploymentb. decreased labor union power, leading to a fall in real wages for workersc. limited expansionary monetary policy of the Federal Reserved. increased the Federal Reserve’s ability to conduct expansionary monetary policy

Homework #2Answer Section

MULTIPLE CHOICE1. ANS: C PTS: 12. ANS: D PTS: 13. ANS: B PTS: 14. ANS: B PTS: 15. ANS: B PTS: 16. ANS: B PTS: 17. ANS: B PTS: 18. ANS: C PTS: 19. ANS: D PTS: 1

10. ANS: C PTS: 111. ANS: B PTS: 112. ANS: A PTS: 113. ANS: B PTS: 114. ANS: D PTS: 115. ANS: C PTS: 116. ANS: C PTS: 117. ANS: C PTS: 118. ANS: B PTS: 119. ANS: B PTS: 120. ANS: B PTS: 121. ANS: D PTS: 122. ANS: B PTS: 123. ANS: C PTS: 124. ANS: A PTS: 125. ANS: B PTS: 126. ANS: A PTS: 1