Question 1

If President Obama wanted to decrease aggregate demand, which of the following would he 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 government spending, because it keeps the public sector small. 
C)  An increase in transfer payments, because it has a larger multiplier than tax changes. 
D)  An increase in taxes, because it would not make the public sector smaller. 
A)  An increase in government spending, because it will increase the size of the public sector. 
B)  A decrease in government spending, because it keeps the public sector small. 
C)  An increase in transfer payments, because it has a larger multiplier than tax changes. 
D)  An increase in taxes, because it would not make the public sector smaller.

Question 2

Critics of supply-side policies argue that the effects of tax cuts are too small to be effective policy.

Accepted Answer

A) True 
 B)False

Question 3

If all variable taxes in the United States were removed and only fixed taxes remained, what would be the effect on the expenditures schedule?

Accepted Answer

A)  The expenditure schedule will shift upward and become steeper. 
B)  The expenditure schedule will shift upward and become less steep. 
C)  The expenditure schedule will shift downward and become less steep. 
D)  The expenditure schedule will shift downward and become steeper. 
A)  The expenditure schedule will shift upward and become steeper. 
B)  The expenditure schedule will shift upward and become less steep. 
C)  The expenditure schedule will shift downward and become less steep. 
D)  The expenditure schedule will shift downward and become steeper.

Question 4

____ is the income actually available to the consumers that determines aggregate demand.

Accepted Answer

A)  Nominal income 
B)  Net domestic product 
C)  Income corrected for depreciation 
D)  Disposable income 
A)  Nominal income 
B)  Net domestic product 
C)  Income corrected for depreciation 
D)  Disposable income

Question 5

How does the multiplier for a change in government spending compare to the multiplier for a change in taxes?

Accepted Answer

A)  It is smaller. 
B)  It is the same. 
C)  It is larger. 
D)  It cannot be calculated. 
A)  It is smaller. 
B)  It is the same. 
C)  It is larger. 
D)  It cannot be calculated.

Question 6

Do policy makers know the exact value of the fiscal multiplier?

Accepted Answer

A)  No, economists have almost no idea of the value of fiscal multipliers. 
B)  No, they are not known with complete accuracy. 
C)  Yes, economists know the precise value of the multiplier. 
D)  Yes, although there is a very small range of uncertainty in the value. 
A)  No, economists have almost no idea of the value of fiscal multipliers. 
B)  No, they are not known with complete accuracy. 
C)  Yes, economists know the precise value of the multiplier. 
D)  Yes, although there is a very small range of uncertainty in the value.

Question 7

Which of the following is not a method to reduce the inflationary gap?

Accepted Answer

A)  Increasing government spending 
B)  Reducing transfer payments 
C)  Raising taxes 
D)  Decreasing government expenditure 
A)  Increasing government spending 
B)  Reducing transfer payments 
C)  Raising taxes 
D)  Decreasing government expenditure

Question 8

Which of the following individuals would most likely favor an increase in government spending, as opposed to a tax cut, as the basis for expansionary fiscal policy?

Accepted Answer

A)  "There must be a constant philosophical prejudice against any intervention by the state into our lives, for by definition such intervention abridges liberty."-William Simon 
B)  "The bastards [read politicians] can't spend what they don't have."-Howard Jarvis 
C)  "The family that takes its mauve and cerise, air-conditioned, power-steered, power-braked automobile through cities that are badly paved, made hideous by litter, [and] blighted buildings...to picnic beside a polluted stream amid the stench of refuse may properly reflect on the curious unevenness of their blessings."-J.K.Galbraith 
D)  "Public expenditures are made for the primary benefit of the middle class and financed with taxes on the poor and rich."-Director's Law 
A)  "There must be a constant philosophical prejudice against any intervention by the state into our lives, for by definition such intervention abridges liberty."-William Simon 
B)  "The bastards [read politicians] can't spend what they don't have."-Howard Jarvis 
C)  "The family that takes its mauve and cerise, air-conditioned, power-steered, power-braked automobile through cities that are badly paved, made hideous by litter, [and] blighted buildings...to picnic beside a polluted stream amid the stench of refuse may properly reflect on the curious unevenness of their blessings."-J.K.Galbraith 
D)  "Public expenditures are made for the primary benefit of the middle class and financed with taxes on the poor and rich."-Director's Law

Question 9

In the short run, tax cuts that are intended to increase aggregate supply have

Accepted Answer

A)  almost no effect on aggregate demand, and a small effect on aggregate supply. 
B)  about an equal effect on both aggregate demand and aggregate supply. 
C)  a much greater effect on aggregate demand than on aggregate supply. 
D)  almost no effect on aggregate supply, and a negative effect on aggregate demand. 
A)  almost no effect on aggregate demand, and a small effect on aggregate supply. 
B)  about an equal effect on both aggregate demand and aggregate supply. 
C)  a much greater effect on aggregate demand than on aggregate supply. 
D)  almost no effect on aggregate supply, and a negative effect on aggregate demand.

Question 10

After September 11, 2001, President George W.Bush believed in the need for a fiscal stimulus.The proper fiscal policy to reflect this could include a(n)

Accepted Answer

A)  increase in taxes. 
B)  reduction in transfer payments. 
C)  increase in government purchases. 
D)  All of the above are correct. 
A)  increase in taxes. 
B)  reduction in transfer payments. 
C)  increase in government purchases. 
D)  All of the above are correct.

Question 11

Most economists seem to agree that cutting taxes

Accepted Answer

A)  on saving has more impact than cutting taxes to increase investment. 
B)  to stimulate investment is more effective than cutting taxes to stimulate work. 
C)  to increase work is more effective than cutting taxes to stimulate investment. 
D)  to increase work incentives is more effective than cutting taxes on saving. 
A)  on saving has more impact than cutting taxes to increase investment. 
B)  to stimulate investment is more effective than cutting taxes to stimulate work. 
C)  to increase work is more effective than cutting taxes to stimulate investment. 
D)  to increase work incentives is more effective than cutting taxes on saving.

Question 12

Explain some of the steps that a government would wish to adopt in an inflationary environment.

Accepted Answer

In the case of an inflationary gap, real

Question 13

The personal income tax varies as GDP changes.

Accepted Answer

A) True 
 B)False

Question 14

Figure 11-3
  
-In Figure 11-3, which line represents the change in the consumption schedule caused by a cut in the personal income tax as advocated by President George W.Bush in 2001?

Accepted Answer

A)  C₁ in graph (a) 
B)  C₂ in graph (a) 
C)  C₁ in graph (b) 
D)  C₂ in graph (b) 
A)  C₁ in graph (a) 
B)  C₂ in graph (a) 
C)  C₁ in graph (b) 
D)  C₂ in graph (b)

Question 15

Figure 11-3
  
-In Figure 11-3, which line represents the change in the consumption schedule caused by an increase in the personal income tax?

Accepted Answer

A)  C₁ in graph (a) 
B)  C₂ in graph (a) 
C)  C₁ in graph (b) 
D)  C₂ in graph (b) 
A)  C₁ in graph (a) 
B)  C₂ in graph (a) 
C)  C₁ in graph (b) 
D)  C₂ in graph (b)

Question 16

How do transfer payments function as negative taxes?

Accepted Answer

Transfer payments intervene between gros

Question 17

When total expenditures exceed the economy's potential GDP, the proper fiscal policy is to

Accepted Answer

A)  increase transfer payments to the poor and elderly. 
B)  cut personal income tax rates. 
C)  decrease government purchases. 
D)  increase purchasing power. 
A)  increase transfer payments to the poor and elderly. 
B)  cut personal income tax rates. 
C)  decrease government purchases. 
D)  increase purchasing power.

Question 18

Liberals tend to favor increasing taxes as the method of counteracting inflation.

Accepted Answer

A) True 
 B)False

Question 19

For conservatives, the United States needs

Accepted Answer

A)  an expanded public sector to protect consumers. 
B)  a smaller public sector and less regulation. 
C)  a larger tax rate and more government spending. 
D)  more public goods and services, such as national health care. 
A)  an expanded public sector to protect consumers. 
B)  a smaller public sector and less regulation. 
C)  a larger tax rate and more government spending. 
D)  more public goods and services, such as national health care.

Question 20

A proponent of supply-side economics would advocate

Accepted Answer

A)  increasing income taxes on saving. 
B)  reducing corporate income tax. 
C)  increasing capital gains tax. 
D)  increasing personal income tax. 
A)  increasing income taxes on saving. 
B)  reducing corporate income tax. 
C)  increasing capital gains tax. 
D)  increasing personal income tax.

Exam 28: Managing Aggregate Demand: Fiscal Policy

If President Obama wanted to decrease aggregate demand, which of the following would he tend to favor?

Critics of supply-side policies argue that the effects of tax cuts are too small to be effective policy.

If all variable taxes in the United States were removed and only fixed taxes remained, what would be the effect on the expenditures schedule?

____ is the income actually available to the consumers that determines aggregate demand.

How does the multiplier for a change in government spending compare to the multiplier for a change in taxes?

Do policy makers know the exact value of the fiscal multiplier?

Which of the following is not a method to reduce the inflationary gap?

Which of the following individuals would most likely favor an increase in government spending, as opposed to a tax cut, as the basis for expansionary fiscal policy?

In the short run, tax cuts that are intended to increase aggregate supply have

After September 11, 2001, President George W.Bush believed in the need for a fiscal stimulus.The proper fiscal policy to reflect this could include a(n)

Most economists seem to agree that cutting taxes

Explain some of the steps that a government would wish to adopt in an inflationary environment.

The personal income tax varies as GDP changes.

Figure 11-3 -In Figure 11-3, which line represents the change in the consumption schedule caused by a cut in the personal income tax as advocated by President George W.Bush in 2001?

Figure 11-3 -In Figure 11-3, which line represents the change in the consumption schedule caused by an increase in the personal income tax?

How do transfer payments function as negative taxes?

When total expenditures exceed the economy's potential GDP, the proper fiscal policy is to

Liberals tend to favor increasing taxes as the method of counteracting inflation.

For conservatives, the United States needs

A proponent of supply-side economics would advocate

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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