1. John Maynard Keynes said business investment is determined mainly by

a. the state of business confidence
b. expectations about the future
c. psychological perceptions about the economy
d. all of the above
2. Assume that the Canada experiences higher inflation that the U.S. If other economic factors remain constant, one could predict that
a. net exports in Canada will increase
b. net exports in U.S will increase
c. net export will remain unchanged in Canada but will increase in the U.S
d. net export will remain unchanged in the U.S but will decrease in the Canada
e. net exports will be unchanged in both U.S and Canada
3. Government Stabilization policy
a. cannot influence investment spending
b. can stimulate aggregate demand and thereby induce business to invest, although the precise amount may be hard to predict
c. can stimulate aggregate demand, but investment spending will not be affected unless interest rtes fall
d. can stimulate aggregate demand in the long run, but short-run changes in aggregate demand are impossible to achieve with government stabilization policy
4. If C = 100+.75Y, I = 500 and (X-IM) = -200 then the equilibrium level of real GDP is
a. 400
b. 800
c. 1600
d.3200
5. If businesses spend an additional $400 billion on investment projects and the national income increases by $1,000 billion, what is the value of the multiplier?
a. 4
b. 3 1/3
c. 2 ½
d. 2
e. 1 ½
6. which of the following could initiate an upward shift in the consumption function?
a. increase in the natural income
b. decrease in the price level
c. increase in the income tax rate
d. stock market crash
7. If GDP rises in a strong economy, what will happen to net exports?
a. they will fall
b. they will increase
c. they will not change
d. it is not possible to predict
8. If the nation experiences a technological breakthrough in the production process, then
a. business cost will rise, profits will fall, and production will decrease.
b. business cost will fall, but profits also will fall; production will remain at the pro-breakthrough level
c. business cost will decline, improving profitability, and production will increase
d. firms will make higher profits but will not increase production unless the nation’s labor supply and capital stock also increase.
9. traditionally, government has used_________to influence_____________.
a. taxing and spending, the demand side of the economy
b. spending, the supply side of the economy
c. supply management, the supply side of the economy
d. micromanagement, the demand side of the economy
10. when taxes are increased, disposable, income, and hence consumption
a. increase
b. decrease
c. stays the same
d. may change in some unpredictable fashion
11. An active stabilization policy designed to limit the size of government would
a. raise G to eliminate a recessionary gap and lower taxes to eliminate an inflationary gap
b. raise G to eliminate a recessionary gap and raise taxes to eliminate an inflationary gap
c. reduce taxes to eliminate a recessionary gap and reduce G to eliminate an inflationary gap
d. reduce taxes to eliminate a recessionary gap and raise G to eliminate an inflationary gap
12. If the government sought to remove an inflationary gap, which of the following would be an appropriate policy?
a. decrease transfer payments
b. increase transfer payments
c. decrease taxes
d. increase government spending
e. increase transfer payments and decrease taxes