Question 1

A "liberal" would most likely argue in favor of

Accepted Answer

A)  tax increases when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
B)  tax cuts when fiscal restraint is necessary, and spending cuts when fiscal stimulus is necessary. 
C)  tax cuts when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
D)  spending increases when fiscal expansion is necessary, and tax increases when fiscal restraint is necessary. 
A)  tax increases when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
B)  tax cuts when fiscal restraint is necessary, and spending cuts when fiscal stimulus is necessary. 
C)  tax cuts when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
D)  spending increases when fiscal expansion is necessary, and tax increases when fiscal restraint is necessary.

Question 2

If a "liberal" wanted to increase aggregate demand, which of the following would she tend to favor?

Accepted Answer

A)  An increase in government spending, because it will increase the size of the public sector. 
B)  A decrease in transfer payments, because it keeps the public sector small. 
C)  An increase in transfer payments, because it has a larger multiplier than tax changes. 
D)  A decrease in taxes, because it makes the public sector smaller. 
A)  An increase in government spending, because it will increase the size of the public sector. 
B)  A decrease in transfer payments, because it keeps the public sector small. 
C)  An increase in transfer payments, because it has a larger multiplier than tax changes. 
D)  A decrease in taxes, because it makes the public sector smaller.

Question 3

In macroeconomic analysis, a transfer payment is considered a

Accepted Answer

A)  positive tax. 
B)  fixed tax. 
C)  negative tax. 
D)  variable tax. 
A)  positive tax. 
B)  fixed tax. 
C)  negative tax. 
D)  variable tax.

Question 4

Once the expenditure schedule has been adjusted for tax levels, the determination of equilibrium GDP

Accepted Answer

A)  is no longer possible. 
B)  becomes much more difficult. 
C)  proceeds exactly as before. 
D)  requires a higher multiplier value. 
A)  is no longer possible. 
B)  becomes much more difficult. 
C)  proceeds exactly as before. 
D)  requires a higher multiplier value.

Question 5

Supply-side policy is based on the assumption that people's economic behavior is not affected by taxes.

Accepted Answer

A) True 
 B)False

Question 6

Most of the taxes collected by governments tend to

Accepted Answer

A)  remain fixed. 
B)  move in the opposite direction from GDP. 
C)  be sales taxes. 
D)  rise and fall with the level of GDP. 
A)  remain fixed. 
B)  move in the opposite direction from GDP. 
C)  be sales taxes. 
D)  rise and fall with the level of GDP.

Question 7

In the middle of a severe recession, Congress passes an increase in the level of unemployment benefits.This would be considered by economists as a

Accepted Answer

A)  positive tax. 
B)  negative tax. 
C)  form of government purchases. 
D)  variable tax. 
A)  positive tax. 
B)  negative tax. 
C)  form of government purchases. 
D)  variable tax.

Question 8

In an effort to balance the budget, the government cuts spending rather than increasing taxes.What will happen to the consumption schedule?

Accepted Answer

A)  It will become steeper. 
B)  It will become flatter. 
C)  It will shift upward. 
D)  It will shift downward. 
E)  It will remain the same and move along it. 
A)  It will become steeper. 
B)  It will become flatter. 
C)  It will shift upward. 
D)  It will shift downward. 
E)  It will remain the same and move along it.

Question 9

Fiscal policy consists of

Accepted Answer

A)  taxes and interest rates. 
B)  government purchases and defense spending. 
C)  the money supply and taxes. 
D)  taxes and government spending. 
A)  taxes and interest rates. 
B)  government purchases and defense spending. 
C)  the money supply and taxes. 
D)  taxes and government spending.

Question 10

Figure 11-2
  
-Which graph in Figure 11-2 best reflects a Keynesian's view of the impact of raising taxes on saving?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 11

How will a cut in a fixed tax affect the consumption schedule?

Accepted Answer

A)  It will shift downward. 
B)  It will shift upward. 
C)  It will become flatter. 
D)  It will become steeper. 
A)  It will shift downward. 
B)  It will shift upward. 
C)  It will become flatter. 
D)  It will become steeper.

Question 12

Government transfer payments act as automatic stabilizers because as labor income decreases, transfer payments

Accepted Answer

A)  decrease as well. 
B)  remain constant. 
C)  increase. 
D)  to the government increase. 
A)  decrease as well. 
B)  remain constant. 
C)  increase. 
D)  to the government increase.

Question 13

If personal income tax rates are decreased in an attempt to stimulate spending, we should expect to see

Accepted Answer

A)  an increase in consumption and an increase in GDP. 
B)  an increase in consumption and a decrease in GDP. 
C)  a decrease in consumption and a decrease in GDP. 
D)  a decrease in consumption and an increase in GDP. 
A)  an increase in consumption and an increase in GDP. 
B)  an increase in consumption and a decrease in GDP. 
C)  a decrease in consumption and a decrease in GDP. 
D)  a decrease in consumption and an increase in GDP.

Question 14

A one-dollar tax reduction has the same effect as a one-dollar increase in government purchases.

Accepted Answer

A) True 
 B)False

Question 15

The macroeconomic policy planner's job is made difficult because of

Accepted Answer

A)  inaccurate multiplier estimates. 
B)  timing problems. 
C)  disagreements over potential GDP. 
D)  uncertain forecasts. 
E)  All of the above are correct. 
A)  inaccurate multiplier estimates. 
B)  timing problems. 
C)  disagreements over potential GDP. 
D)  uncertain forecasts. 
E)  All of the above are correct.

Question 16

Tax cuts associated with supply-side economics often lead to increased

Accepted Answer

A)  federal budget surpluses. 
B)  federal budget deficits. 
C)  foreign trade surpluses. 
D)  government spending. 
A)  federal budget surpluses. 
B)  federal budget deficits. 
C)  foreign trade surpluses. 
D)  government spending.

Question 17

Taxes are the difference between

Accepted Answer

A)  GDP and net exports. 
B)  GDP and consumer spending. 
C)  Consumer spending and saving. 
D)  GDP and disposable income. 
A)  GDP and net exports. 
B)  GDP and consumer spending. 
C)  Consumer spending and saving. 
D)  GDP and disposable income.

Question 18

Taxes, transfer payments, and government purchases are the components of automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 19

Government spending influences spending indirectly.

Accepted Answer

A) True 
 B)False

Question 20

Figure 11-2
  
-Which graph in Figure 11-2 best reflects a Keynesian's view of the short-run impact of an increase in the personal income tax rate?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Exam 28: Managing Aggregate Demand: Fiscal Policy

A "liberal" would most likely argue in favor of

If a "liberal" wanted to increase aggregate demand, which of the following would she tend to favor?

In macroeconomic analysis, a transfer payment is considered a

Once the expenditure schedule has been adjusted for tax levels, the determination of equilibrium GDP

Supply-side policy is based on the assumption that people's economic behavior is not affected by taxes.

Most of the taxes collected by governments tend to

In the middle of a severe recession, Congress passes an increase in the level of unemployment benefits.This would be considered by economists as a

In an effort to balance the budget, the government cuts spending rather than increasing taxes.What will happen to the consumption schedule?

Fiscal policy consists of

Figure 11-2 -Which graph in Figure 11-2 best reflects a Keynesian's view of the impact of raising taxes on saving?

How will a cut in a fixed tax affect the consumption schedule?

Government transfer payments act as automatic stabilizers because as labor income decreases, transfer payments

If personal income tax rates are decreased in an attempt to stimulate spending, we should expect to see

A one-dollar tax reduction has the same effect as a one-dollar increase in government purchases.

The macroeconomic policy planner's job is made difficult because of

Tax cuts associated with supply-side economics often lead to increased

Taxes are the difference between

Taxes, transfer payments, and government purchases are the components of automatic stabilizers.

Government spending influences spending indirectly.

Figure 11-2 -Which graph in Figure 11-2 best reflects a Keynesian's view of the short-run impact of an increase in the personal income tax rate?

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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