Question 1

To eliminate an inflationary gap, the expenditure schedule should

Accepted Answer

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

Question 2

During the deliberations on fiscal stimulus in 2009, the debate over fiscal policy focused on

Accepted Answer

A) the multiplier effect of tax cuts versus higher government spending. 
B) the multiplier effect of different types of tax cuts. 
C) the incentive effects of tax cuts. 
D) all of the above 
A) the multiplier effect of tax cuts versus higher government spending. 
B) the multiplier effect of different types of tax cuts. 
C) the incentive effects of tax cuts. 
D) all of the above D

Question 3

One of the practical issues in the choice of government spending or taxes to change aggregate demand is how large a

Accepted Answer

A) change in demand we want. 
B) trade deficit we want. 
C) budget deficit we want. 
D) government sector we want. 
A) change in demand we want. 
B) trade deficit we want. 
C) budget deficit we want. 
D) government sector we want. D

Question 4

During the 2008 presidential campaign, candidate Barack Obama argued in favor of repealing the majority of the Bush tax cuts in order to increase government revenue.

Accepted Answer

A) True 
 B)False

Question 5

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.

Question 6

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 7

Transfer payments represent income that is not earned but received by individuals.

Accepted Answer

A) True 
 B)False

Question 8

When taxes are decreased, disposable income increases even though GDP is unchanged.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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 11

Supply-side tax cuts tend to benefit the rich because tax cuts

Accepted Answer

A) on income tend to benefit high income earners more than low income earners. 
B) on savings benefit high income earners who do most of the personal saving. 
C) for capital formation tend to benefit those with the means to accumulate capital. 
D) on capital gains tend to benefit those with larger financial assets. 
E) All of the above are correct. 
A) on income tend to benefit high income earners more than low income earners. 
B) on savings benefit high income earners who do most of the personal saving. 
C) for capital formation tend to benefit those with the means to accumulate capital. 
D) on capital gains tend to benefit those with larger financial assets. 
E) All of the above are correct.

Question 12

For liberals, the United States has a(n)

Accepted Answer

A) public sector that is too large. 
B) private sector that is too small. 
C) economy that is too heavily regulated. 
D) public sector that is too small. 
A) public sector that is too large. 
B) private sector that is too small. 
C) economy that is too heavily regulated. 
D) public sector that is too small.

Question 13

How does a tax cut affect the expenditure schedule?

Accepted Answer

A) It causes movement to the left along the schedule. 
B) It causes the schedule to shift upward. 
C) It causes movement to the right along the schedule. 
D) It causes the schedule to shift downward. 
A) It causes movement to the left along the schedule. 
B) It causes the schedule to shift upward. 
C) It causes movement to the right along the schedule. 
D) It causes the schedule to shift downward.

Question 14

Most tax payments increase as GDP increases.

Accepted Answer

A) True 
 B)False

Question 15

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 16

The personal income tax varies as GDP changes.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Taxes reduce total spending

Accepted Answer

A) directly by increasing government purchases by an equal amount. 
B) directly by substituting investment spending. 
C) indirectly by reducing government spending. 
D) indirectly by reducing disposable income. 
A) directly by increasing government purchases by an equal amount. 
B) directly by substituting investment spending. 
C) indirectly by reducing government spending. 
D) indirectly by reducing disposable income.

Question 19

A major complication with fiscal policy to control aggregate demand is the

Accepted Answer

A) inability to agree on macroeconomic goals. 
B) accuracy of modern forecasting models. 
C) inability to change aggregate demand with fiscal tools. 
D) constantly changing investment and net exports because of other events. 
A) inability to agree on macroeconomic goals. 
B) accuracy of modern forecasting models. 
C) inability to change aggregate demand with fiscal tools. 
D) constantly changing investment and net exports because of other events.

Question 20

Contractionary fiscal policy may have some undesirable consequences.Among these is

Accepted Answer

A) higher unemployment. 
B) higher inflation. 
C) higher net exports. 
D) larger federal deficits. 
A) higher unemployment. 
B) higher inflation. 
C) higher net exports. 
D) larger federal deficits.

Exam 28: Managing Aggregate Demand: Fiscal Policy

To eliminate an inflationary gap, the expenditure schedule should

During the deliberations on fiscal stimulus in 2009, the debate over fiscal policy focused on

One of the practical issues in the choice of government spending or taxes to change aggregate demand is how large a

During the 2008 presidential campaign, candidate Barack Obama argued in favor of repealing the majority of the Bush tax cuts in order to increase government revenue.

A proponent of supply-side economics would advocate

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

Transfer payments represent income that is not earned but received by individuals.

When taxes are decreased, disposable income increases even though GDP is unchanged.

Taxes are the difference between

In macroeconomic analysis, a transfer payment is considered a

Supply-side tax cuts tend to benefit the rich because tax cuts

For liberals, the United States has a(n)

How does a tax cut affect the expenditure schedule?

Most tax payments increase as GDP increases.

If the value of the multiplier is smaller, the economy

The personal income tax varies as GDP changes.

Government can raise GDP by $1,000 billion by:

Taxes reduce total spending

A major complication with fiscal policy to control aggregate demand is the

Contractionary fiscal policy may have some undesirable consequences.Among these is

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: the Price System

The Shortcomings of Free Markets

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

Is Useconomic Leadership Threatened

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

He 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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