Chapter 17 Stabilizing the National Economy   1. The underground economy makes it difficult to accurately measure unemployment because __________     a) statisticians cannot possibly interview every person in and out of the labor force.     b) it consists of people who do not follow federal and state laws with respect to reporting earnings.     c) it consists of people whose unemployment is caused by changes in the seasons or weather.     d) it consists of people whose jobs are sensitive to technological advances or changes in the marketplace.   2. All of the following are types of unemployment EXCEPT __________     a) recessional.     b) cyclical.     c) structural.     d) frictional.   3. Which of the following statements about demand-pull inflation is NOT true?     a) Demand-pull inflation could occur if the Fed dramatically decreased reserve requirements.     b) Demand-pull inflation could occur if the federal government dramatically increased spending.     c) Demand-pull inflation could occur if the President announced the largest tax cut in history.     d) Demand-pull inflation could occur if major corporations decreased their investments for expansion.   4. Which of the following is an example of cost-push inflation?     a) the Fed buys large quantities of Treasury bills     b) automakers seek to triple their manufacturing capacity to meet demand     c) automakers raise prices on compact cars to match prices of imports and increase their profits     d) aggregate demand increases by 25 percent   5. The government's use of taxation and spending policies to affect overall business activity is called __________     a) monetary policy.     b) circular flow of income.     c) Keynesian theory.     d) fiscal policy.   6. According to the circular flow of income, income flows from businesses to households in all of the following forms EXCEPT as __________     a) transfer payments.     b) wages.     c) rents.     d) interest.   7. In the circular flow of income, leakages are activities that __________     a) place more dollars in the hands of consumers.     b) remove income from the economy.     c) result in an increase in overall business activity.     d) result in increased aggregate demand.   8. To combat unemployment, the federal government has used fiscal policy in all the following ways EXCEPT __________     a) creating job programs to hire unemployed workers.     b) encouraging business expansion by giving tax credits.     c) increasing taxes.     d) creating the Federal Art Project and the Federal Writers Project during the 1930s.   9. To stabilize the economy, monetarists believe that __________     a) fiscal policy should be used to stimulate or slow the economy.     b) the government should operate with a federal budget deficit.     c) injections and leakages should balance in the circular flow of economic activity.     d) the Fed should follow a monetary rule, allowing the money supply to grow at a given percent each year.   10. Monetarists' criticisms of fiscal policy include all of the following EXCEPT that __________     a) there is a time lag between enacting the policy and its effective date.     b) fiscal policy is too complex and difficult to implement.     c) no single government body designs and implements fiscal policy.     d) the economy is too complex for fiscal measures to successfully adjust investment or spending.