Question 1

Fiscal policy is the use of taxes and spending by the government to affect aggregate demand.

Accepted Answer

A) True 
 B)False

Question 2

If Congress votes to increase government purchases and at the same time decreases personal income taxes, they

Accepted Answer

A) have decided to balance the federal budget. 
B) have voted for the proper policy to counteract a recessionary gap. 
C) have voted for the proper policy to counteract an inflationary gap. 
D) are trying to achieve a federal budget surplus. 
A) have decided to balance the federal budget. 
B) have voted for the proper policy to counteract a recessionary gap. 
C) have voted for the proper policy to counteract an inflationary gap. 
D) are trying to achieve a federal budget surplus.

Question 3

If the economy experiences an unplanned inventory accumulation at the full employment level of GDP, then the economy is in a(n)

Accepted Answer

A) inflationary gap. 
B) hyperinflation. 
C) recessionary gap. 
D) full employment gap. 
A) inflationary gap. 
B) hyperinflation. 
C) recessionary gap. 
D) full employment gap.

Question 4

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 5

Any tax reduction shifts the consumption schedule upward.

Accepted Answer

A) True 
 B)False

Question 6

If the MPC in the United States was low, it would increase the value of the multiplier.

Accepted Answer

A) True 
 B)False

Question 7

Compared to an economy's self-correcting mechanism, active contractionary fiscal policy will

Accepted Answer

A) work more slowly and calmly. 
B) work more quickly. 
C) have less deflationary effects. 
D) have a smaller effect on real GDP. 
A) work more slowly and calmly. 
B) work more quickly. 
C) have less deflationary effects. 
D) have a smaller effect on real GDP.

Question 8

Explain how a "conservative" and a "liberal" might differ in the types of policies they advocate to counteract a recessionary gap.

Accepted Answer

Conservatives tend to want a smaller gov

Question 9

Supply-side economists

Accepted Answer

A) favor a smaller government. 
B) favor higher marginal tax rates. 
C) favor deficit spending. 
D) all of these. 
A) favor a smaller government. 
B) favor higher marginal tax rates. 
C) favor deficit spending. 
D) all of these.

Question 10

Table 11-1  
-Government can raise GDP by $1,000 billion by

Accepted Answer

A) raising government purchases 
B) reducing taxes 
C) increasing transfer payments 
D) all of the above 
A) raising government purchases 
B) reducing taxes 
C) increasing transfer payments 
D) all of the above

Question 11

When government spending is added to the basic macroeconomic model, the multiplier for G would

Accepted Answer

A) be higher than the multiplier for autonomous spending. 
B) be lower than the multiplier for autonomous spending. 
C) be equal to the multiplier for autonomous spending. 
D) have no relationship to the autonomous spending multiplier. 
A) be higher than the multiplier for autonomous spending. 
B) be lower than the multiplier for autonomous spending. 
C) be equal to the multiplier for autonomous spending. 
D) have no relationship to the autonomous spending multiplier.

Question 12

Which of the following conclusions about supply-side tax initiatives is accepted by most economists?

Accepted Answer

A) Supply-side tax cuts are likely to benefit the poor as much as the rich. 
B) Supply-side tax cuts will almost certainly lead to smaller budget deficits. 
C) Such tax cuts probably will increase aggregate supply quickly, but an increase in aggregate demand will come later. 
D) Tax reductions aimed at stimulating business investment are likely to have a greater impact than tax reductions aimed at getting people to work longer hours or save more. 
A) Supply-side tax cuts are likely to benefit the poor as much as the rich. 
B) Supply-side tax cuts will almost certainly lead to smaller budget deficits. 
C) Such tax cuts probably will increase aggregate supply quickly, but an increase in aggregate demand will come later. 
D) Tax reductions aimed at stimulating business investment are likely to have a greater impact than tax reductions aimed at getting people to work longer hours or save more.

Question 13

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 14

Most economists have reached the following conclusion about supply-side economics.

Accepted Answer

A) Supply-side tax cuts are likely to reduce income inequality. 
B) Supply-side tax cuts are almost certain to lead to smaller budget deficits. 
C) Supply-side tax cuts are likely to widen income inequality. 
D) None of these. 
A) Supply-side tax cuts are likely to reduce income inequality. 
B) Supply-side tax cuts are almost certain to lead to smaller budget deficits. 
C) Supply-side tax cuts are likely to widen income inequality. 
D) None of these.

Question 15

Suppose that the U.S.personal income tax was eliminated and replaced with a fixed tax that raised the exact same amount of revenue.The multiplier would be

Accepted Answer

A) larger. 
B) unchanged. 
C) smaller. 
D) incalculable. 
A) larger. 
B) unchanged. 
C) smaller. 
D) incalculable.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

One objection to supply-side tax cuts is that demand-side changes

Accepted Answer

A) are smaller than supply-side changes. 
B) and supply-side changes are about equal. 
C) are more unpredictable than supply-side changes. 
D) are larger than supply-side changes. 
A) are smaller than supply-side changes. 
B) and supply-side changes are about equal. 
C) are more unpredictable than supply-side changes. 
D) are larger than supply-side changes.

Question 18

As a result of the recent financial crisis, some analysts believed that the MPC in the U.S.declined.If this is true, the value of the multiplier is now

Accepted Answer

A) smaller. 
B) larger. 
C) the same. 
D) magnified to a larger amount. 
A) smaller. 
B) larger. 
C) the same. 
D) magnified to a larger amount.

Question 19

Reducing taxes on capital gains is an example of a supply-side tax cut.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) An increase in government spending, because it has a larger multiplier than tax changes. 
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 has a larger multiplier than tax changes. 
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.

Exam 27: Managing Aggregate Demand: Fiscal Policy

Fiscal policy is the use of taxes and spending by the government to affect aggregate demand.

If Congress votes to increase government purchases and at the same time decreases personal income taxes, they

If the economy experiences an unplanned inventory accumulation at the full employment level of GDP, then the economy is in a(n)

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

Any tax reduction shifts the consumption schedule upward.

If the MPC in the United States was low, it would increase the value of the multiplier.

Compared to an economy's self-correcting mechanism, active contractionary fiscal policy will

Explain how a "conservative" and a "liberal" might differ in the types of policies they advocate to counteract a recessionary gap.

Supply-side economists

Table 11-1 -Government can raise GDP by $1,000 billion by

When government spending is added to the basic macroeconomic model, the multiplier for G would

Which of the following conclusions about supply-side tax initiatives is accepted by most economists?

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

Most economists have reached the following conclusion about supply-side economics.

Suppose that the U.S.personal income tax was eliminated and replaced with a fixed tax that raised the exact same amount of revenue.The multiplier would be

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

One objection to supply-side tax cuts is that demand-side changes

As a result of the recent financial crisis, some analysts believed that the MPC in the U.S.declined.If this is true, the value of the multiplier is now

Reducing taxes on capital gains is an example of a supply-side tax cut.

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

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

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