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This quiz consists of 5 multiple choice and 5 short answer questions through Chapter 5, Fiscal Policy.

Multiple Choice Questions

1. The thought that the best use of government spending would be on useless projects is known as ______.
(a) "Steaming the water."
(b) "Filling holes."
(c) "Emptying the pot."
(d) "Evening it out."

2. What does Friedman believe will become self-regulating?
(a) Exchange rates.
(b) The World Bank.
(c) Monetary stocks.
(d) The gold standard.

3. Which of the following does Friedman dispute?
(a) The gold standard for backing money is good.
(b) Government should stay out of individual economic choices.
(c) A free market economic system works.
(d) The Central Bank holds too much power.

4. Instead of government spending, what does Friedman advocate the government use to stabilize the economy?
(a) Taxes.
(b) Health care.
(c) Welfare.
(d) Unemployment.

5. What does Friedman believe is an appropriate rate of increase for the Federal Reserve?
(a) 1%-3%.
(b) 5%-7%.
(c) None. That is not a goal of the Federal Reserve.
(d) 3%-5%.

Short Answer Questions

1. What term refers to the Federal Reserve's ability to produce more money than is deposited?

2. Which term refers to the government stimulating spending?

3. What caused all the major nations to abandon the gold standard?

4. What does Friedman use as an example of a use of government where individuals cannot consume individual amounts?

5. Friedman argues against the theory that $100 in government spending will increase income by ______.

(see the answer key)

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