Question 1

If a "liberal" 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 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 2

President George W. Bush, who favored a smaller government sector,

Accepted Answer

A)  believed we should increase G to eliminate a recessionary gap. 
B)  believed we should raise taxes to eliminate an inflationary gap. 
C)  favored an active fiscal policy just as well as those who favor a larger government sector. 
D)  argued against the use of an active fiscal policy. 
A)  believed we should increase G to eliminate a recessionary gap. 
B)  believed we should raise taxes to eliminate an inflationary gap. 
C)  favored an active fiscal policy just as well as those who favor a larger government sector. 
D)  argued against the use of an active fiscal policy.

Question 3

An increase in taxes shifts the

Accepted Answer

A)  aggregate supply curve outward. 
B)  aggregate demand curve outward. 
C)  consumption schedule upward. 
D)  consumption schedule downward. 
A)  aggregate supply curve outward. 
B)  aggregate demand curve outward. 
C)  consumption schedule upward. 
D)  consumption schedule downward.

Question 4

If the value of the multiplier is smaller, the economy

Accepted Answer

A)  becomes less stable because automatic stabilizers have a larger impact. 
B)  becomes more stable because automatic stabilizers have a larger impact. 
C)  becomes more volatile because automatic stabilizers have a lesser impact. 
D)  is subject to larger fluctuations because automatic stabilizers have no impact. 
A)  becomes less stable because automatic stabilizers have a larger impact. 
B)  becomes more stable because automatic stabilizers have a larger impact. 
C)  becomes more volatile because automatic stabilizers have a lesser impact. 
D)  is subject to larger fluctuations because automatic stabilizers have no impact.

Question 5

How do transfer payments function as negative taxes?

Accepted Answer

Transfer payments intervene between gros

Question 6

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 7

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 8

If the government decides to change the level of government spending, what happens to the value of the multiplier?

Accepted Answer

A)  It becomes larger. 
B)  It becomes smaller. 
C)  It does not change. 
D)  It is impossible to predict. 
A)  It becomes larger. 
B)  It becomes smaller. 
C)  It does not change. 
D)  It is impossible to predict.

Question 9

Define the following terms and explain their significance to the study of macroeconomics. 
a. Fiscal policy 
b. Transfer payments 
c. Effect of income taxes on the multiplier 
d. Supply-side tax cuts

Accepted Answer

a. Fiscal policy is the federal governme

Question 10

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 11

The multiplier is reduced by an income tax because an income tax reduces the fraction of each dollar of GDP that consumers actually receive and spend.

Accepted Answer

A) True 
 B)False

Question 12

If the demand-side effects of supply-side tax cuts are greater than the supply-side effects, then we can expect the result to be a(n)

Accepted Answer

A)  decrease in output and prices. 
B)  decrease in output and an increase in prices. 
C)  increase in output and prices. 
D)  increase in output and a decrease in prices. 
A)  decrease in output and prices. 
B)  decrease in output and an increase in prices. 
C)  increase in output and prices. 
D)  increase in output and a decrease in prices.

Question 13

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 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

Figure 11-1
 
In Figure 11-1, to achieve equilibrium at potential GDP, the government could

Accepted Answer

A)  increase taxes. 
B)  decrease transfer payments. 
C)  increase government purchases. 
D)  None of the above is correct. 
A)  increase taxes. 
B)  decrease transfer payments. 
C)  increase government purchases. 
D)  None of the above is correct.

Question 17

The Reagan tax cuts of the 1980s

Accepted Answer

A)  had not impact on the budget deficit. 
B)  decreased the budget deficit. 
C)  increased the budget deficit. 
D)  initially decreased the deficit but later increased it. 
A)  had not impact on the budget deficit. 
B)  decreased the budget deficit. 
C)  increased the budget deficit. 
D)  initially decreased the deficit but later increased it.

Question 18

Discuss some of the general conclusions arrived at about supply-side tax initiatives.

Accepted Answer

1. The likely effectiveness of supply-si

Question 19

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

Accepted Answer

A)  1,000 
B)  950 
C)  945.5 
D)  937.5 
E)  437.5 
A)  1,000 
B)  950 
C)  945.5 
D)  937.5 
E)  437.5

Question 20

A proponent of supply-side economics would advocate

Accepted Answer

A)  reducing income taxes on saving. 
B)  reducing tax credits for research and development. 
C)  eliminating the depreciation allowance. 
D)  increasing the corporate income tax. 
A)  reducing income taxes on saving. 
B)  reducing tax credits for research and development. 
C)  eliminating the depreciation allowance. 
D)  increasing the corporate income tax.

Exam 27: Managing Aggregate Demand: Fiscal Policy

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

President George W. Bush, who favored a smaller government sector,

An increase in taxes shifts the

If the value of the multiplier is smaller, the economy

How do transfer payments function as negative taxes?

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

For conservatives, the United States needs

If the government decides to change the level of government spending, what happens to the value of the multiplier?

Define the following terms and explain their significance to the study of macroeconomics. a. Fiscal policy b. Transfer payments c. Effect of income taxes on the multiplier d. Supply-side tax cuts

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

The multiplier is reduced by an income tax because an income tax reduces the fraction of each dollar of GDP that consumers actually receive and spend.

If the demand-side effects of supply-side tax cuts are greater than the supply-side effects, then we can expect the result to be a(n)

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

The Bush tax cuts

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

Figure 11-1 In Figure 11-1, to achieve equilibrium at potential GDP, the government could

The Reagan tax cuts of the 1980s

Discuss some of the general conclusions arrived at about supply-side tax initiatives.

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

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

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 Us Economy

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