Analysis indicates that the economy is in a recessionary gap. Which of the following is the most appropriate policy mix in this situation?
A. A budget surplus and expansionary monetary policy
B. A budget deficit and expansionary monetary policy
C. A budget deficit and contractionary monetary policy
D. A budget surplus and contractionary monetary policy
Answer: B
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What important lesson did American economists learn in the 1980s and again in 2001–2003?
A. Large tax cuts can lead to a balance of trade surplus. B. Large government budget deficits can crowd out consumption. C. Large government budget deficits can bankrupt the nation. D. Large government budget deficits can crowd out net exports.
The economy pictured in the figure below has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 
A. recessionary; B B. recessionary; C C. recessionary; A D. expansionary; A
When the price level_______, the inflation rate ______
A. rises rapidly; increases B. rises rapidly; is high C. falls; is zero D. rises slowly; falls
What is the assumption underlying public-choice theory?
A) Elected officials believe in cooperating with one another and they seek to avoid competition among themselves. B) The costs and benefits of being efficient are the same whether one is in the private sector or in the public sector. C) Individuals act within the political process to improve their own individual well-being. D) Resources in the public sector are not scarce.