Question 1

A substantial decrease in marginal tax rates will encourage individuals to

Accepted Answer

A) increase their earnings and work effort. 
B) save a smaller portion of their income. 
C) take more time off for vacations. 
D) spend more on tax-deductible items. 
A) increase their earnings and work effort. 
B) save a smaller portion of their income. 
C) take more time off for vacations. 
D) spend more on tax-deductible items.

Question 2

Which of the following is an argument for tax cuts rather than government spending as a way to promote recovery from a recession?

Accepted Answer

A) Tax cuts are better suited to direct resources into projects that consumers value more highly than the resources required for their production. 
B) 100 percent of a tax cut will stimulate aggregate demand, but this will not be the case for an increase in government expenditures. 
C) Tax cuts will encourage rent seeking; increases in government spending will not. 
D) Tax cuts will change the structure of aggregate demand more than increases in government spending. 
A) Tax cuts are better suited to direct resources into projects that consumers value more highly than the resources required for their production. 
B) 100 percent of a tax cut will stimulate aggregate demand, but this will not be the case for an increase in government expenditures. 
C) Tax cuts will encourage rent seeking; increases in government spending will not. 
D) Tax cuts will change the structure of aggregate demand more than increases in government spending.

Question 3

How do new classical economists differ from Keynesian economists in their assumptions about how government borrowing affects household consumption and borrowing patterns?

Accepted Answer

Keynesian economists believe households

Question 4

Which of the following makes it more likely that a country will get caught in a vicious circle of debt financing, higher taxes, and sluggish growth?

Accepted Answer

A) Politicians like to raise taxes, but they are reluctant to spend on education, health care, and roads. 
B) High levels of debt will eventually lead to higher taxes just to pay the interest on the debt, but high taxes will slow economic growth. 
C) As outstanding debt increases, politicians will be reluctant to run budget deficits, which will cause the economy to slow. 
D) As outstanding debt increases, short-sighted politicians will want to run large budget surpluses in order to pay off the national debt quickly. 
A) Politicians like to raise taxes, but they are reluctant to spend on education, health care, and roads. 
B) High levels of debt will eventually lead to higher taxes just to pay the interest on the debt, but high taxes will slow economic growth. 
C) As outstanding debt increases, politicians will be reluctant to run budget deficits, which will cause the economy to slow. 
D) As outstanding debt increases, short-sighted politicians will want to run large budget surpluses in order to pay off the national debt quickly.

Question 5

Use the figure below to answer the following question(s).
Figure 12-1  
-Refer to Figure 12-2. Which of the following will most likely be favored by a Keynesian economist if the economy is operating at point a?

Accepted Answer

A) a balanced budget 
B) restrictive fiscal policy 
C) expansionary fiscal policy 
D) continuation of the current tax and expenditure policies (dependence on the economy's self-correcting mechanism to restore full employment) 
A) a balanced budget 
B) restrictive fiscal policy 
C) expansionary fiscal policy 
D) continuation of the current tax and expenditure policies (dependence on the economy's self-correcting mechanism to restore full employment)

Question 6

Higher standards of living are the result of

Accepted Answer

A) an increase in the general level of prices. 
B) trade restrictions that favor domestic industries over foreign competition. 
C) an increase in the availability of goods and services that people value. 
D) government subsidies that expand employment. 
A) an increase in the general level of prices. 
B) trade restrictions that favor domestic industries over foreign competition. 
C) an increase in the availability of goods and services that people value. 
D) government subsidies that expand employment.

A substantial decrease in marginal tax rates will encourage individuals to

Which of the following is an argument for tax cuts rather than government spending as a way to promote recovery from a recession?

How do new classical economists differ from Keynesian economists in their assumptions about how government borrowing affects household consumption and borrowing patterns?

Which of the following makes it more likely that a country will get caught in a vicious circle of debt financing, higher taxes, and sluggish growth?

Use the figure below to answer the following question(s). Figure 12-1 -Refer to Figure 12-2. Which of the following will most likely be favored by a Keynesian economist if the economy is operating at point a?

Higher standards of living are the result of

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 12: Fiscal Policy, Incentives, and Secondary Effects

A substantial decrease in marginal tax rates will encourage individuals to

Which of the following is an argument for tax cuts rather than government spending as a way to promote recovery from a recession?

How do new classical economists differ from Keynesian economists in their assumptions about how government borrowing affects household consumption and borrowing patterns?

Which of the following makes it more likely that a country will get caught in a vicious circle of debt financing, higher taxes, and sluggish growth?

Use the figure below to answer the following question(s). Figure 12-1 -Refer to Figure 12-2. Which of the following will most likely be favored by a Keynesian economist if the economy is operating at point a?

Higher standards of living are the result of

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters