Question 1

An increase or decrease in taxes will have a multiplier effect on equilibrium GDP on the demand side.

Accepted Answer

A) True 
 B)False

Question 2

The personal income tax varies as GDP changes.

Accepted Answer

A) True 
 B)False

Question 3

An income tax reduces the size of the multiplier

Accepted Answer

A) True 
 B)False

Question 4

If income tax rates are increased in an attempt to balance the federal budget, we should expect to see

Accepted Answer

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

Question 5

Figure 11-1
​  
-In Figure 11-1, to reach the level of potential GDP, the administration of President Obama would most likely advocate

Accepted Answer

A) increasing Social Security payments. 
B) decreasing defense spending. 
C) decreasing personal income taxes. 
D) All of the above are correct. 
A) increasing Social Security payments. 
B) decreasing defense spending. 
C) decreasing personal income taxes. 
D) All of the above are correct.

Question 6

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 7

Transfer payments resemble

Accepted Answer

A) negative taxes. 
B) positive taxes. 
C) exports. 
D) none of these. 
A) negative taxes. 
B) positive taxes. 
C) exports. 
D) none of these.

Question 8

When we add a personal income tax to the macroeconomic model, the

Accepted Answer

A) multiplier becomes larger. 
B) multiplier becomes smaller. 
C) expenditures schedule shifts upward. 
D) expenditures schedule becomes steeper. 
A) multiplier becomes larger. 
B) multiplier becomes smaller. 
C) expenditures schedule shifts upward. 
D) expenditures schedule becomes steeper.

Question 9

If a state government reduces property taxes for residents at the same time that it increases the state income tax, what will happen to the expenditures schedule of the residents of this state?

Accepted Answer

A) It shifts upward. 
B) It shifts downward. 
C) It becomes less steep. 
D) It becomes steeper. 
E) It does not change. 
A) It shifts upward. 
B) It shifts downward. 
C) It becomes less steep. 
D) It becomes steeper. 
E) It does not change.

Question 10

Why does a tax change affect aggregate demand?

Accepted Answer

A) A tax change alters saving by an equal amount. 
B) A tax change alters imports and net exports. 
C) A tax change alters government spending by an equal amount. 
D) A tax change alters disposable income and consumption spending. 
A) A tax change alters saving by an equal amount. 
B) A tax change alters imports and net exports. 
C) A tax change alters government spending by an equal amount. 
D) A tax change alters disposable income and consumption spending.

Question 11

Expansionary fiscal policy can cause a rise in real GDP in combination with

Accepted Answer

A) an increase in the price level. 
B) a decrease in the price level. 
C) no change in the price level. 
D) a decrease in the price level if the aggregate supply curve is upward sloping. 
A) an increase in the price level. 
B) a decrease in the price level. 
C) no change in the price level. 
D) a decrease in the price level if the aggregate supply curve is upward sloping.

Question 12

In the determination of disposable income, transfer payments are treated as if they

Accepted Answer

A) are the same as taxes. 
B) did not exist. 
C) are the opposite of taxes. 
D) were a constant amount. 
A) are the same as taxes. 
B) did not exist. 
C) are the opposite of taxes. 
D) were a constant amount.

Question 13

Figure 11-2
​  
-Which graph in Figure 11-2 best reflects a Keynesian view of the impact of a $500-per-person tax cut?

Accepted Answer

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

Question 14

Figure 11-3
​  
-In Figure 11-3, which line represents the change in the consumption schedule caused by an increase in the residential property 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 15

Critics of supply-side economics argue that a major flaw is

Accepted Answer

A) the small magnitude of supply-side effects. 
B) the large size of demand-side effects. 
C) increased income inequality. 
D) all of the above 
A) the small magnitude of supply-side effects. 
B) the large size of demand-side effects. 
C) increased income inequality. 
D) all of the above

Question 16

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 17

Government purchases have the same multiplier effect as business investment spending.

Accepted Answer

A) True 
 B)False

Question 18

Why did President George W.Bush feel the need for a stimulus package for the U.S.economy after September 11, 2001? As a conservative, what type of fiscal stimulus would be most appealing to President Bush?

Accepted Answer

The decline in real GDP and the existenc

Question 19

Figure 11-2
​  
-The Bush tax cuts

Accepted Answer

A) reduced tax rates for the upper brackets and increased tax rates for lower-income taxpayers. 
B) reduced tax rates for the upper brackets and held constant tax rates for lower-income taxpayers. 
C) reduced tax rates for the upper brackets and decreased tax rates for lower-income taxpayers. 
D) held constant tax rates for the upper brackets and decreased tax rates for lower-income taxpayers. 
E) Increased tax rates for the upper brackets and decreased tax rates for lower-income taxpayers. 
A) reduced tax rates for the upper brackets and increased tax rates for lower-income taxpayers. 
B) reduced tax rates for the upper brackets and held constant tax rates for lower-income taxpayers. 
C) reduced tax rates for the upper brackets and decreased tax rates for lower-income taxpayers. 
D) held constant tax rates for the upper brackets and decreased tax rates for lower-income taxpayers. 
E) Increased tax rates for the upper brackets and decreased tax rates for lower-income taxpayers.

Question 20

Table 11-1  
-Refer to Table 11-1.What is the equilibrium level of income in this model?

Accepted Answer

A) 5,000 
B) 4,500 
C) 3,750 
D) 3,500 
E) 3,250 
A) 5,000 
B) 4,500 
C) 3,750 
D) 3,500 
E) 3,250

Exam 27: Managing Aggregate Demand: Fiscal Policy

An increase or decrease in taxes will have a multiplier effect on equilibrium GDP on the demand side.

The personal income tax varies as GDP changes.

An income tax reduces the size of the multiplier

If income tax rates are increased in an attempt to balance the federal budget, we should expect to see

Figure 11-1 ​ -In Figure 11-1, to reach the level of potential GDP, the administration of President Obama would most likely advocate

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

Transfer payments resemble

When we add a personal income tax to the macroeconomic model, the

If a state government reduces property taxes for residents at the same time that it increases the state income tax, what will happen to the expenditures schedule of the residents of this state?

Why does a tax change affect aggregate demand?

Expansionary fiscal policy can cause a rise in real GDP in combination with

In the determination of disposable income, transfer payments are treated as if they

Figure 11-2 ​ -Which graph in Figure 11-2 best reflects a Keynesian view of the impact of a $500-per-person tax cut?

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

Critics of supply-side economics argue that a major flaw is

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?

Government purchases have the same multiplier effect as business investment spending.

Why did President George W.Bush feel the need for a stimulus package for the U.S.economy after September 11, 2001? As a conservative, what type of fiscal stimulus would be most appealing to President Bush?

Figure 11-2 ​ -The Bush tax cuts

Table 11-1 -Refer to Table 11-1.What is the equilibrium level of income in this model?

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

Filters

Figure 11-1 -In Figure 11-1, to reach the level of potential GDP, the administration of President Obama would most likely advocate

Figure 11-2 -Which graph in Figure 11-2 best reflects a Keynesian view of the impact of a $500-per-person tax cut?

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

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?

Figure 11-2 -The Bush tax cuts