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

Taxes constitute the difference between GDP and disposable income.

Accepted Answer

A) True 
 B)False

Question 3

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 4

Supply-side tax cuts are more likely to have the intended beneficial effect on

Accepted Answer

A) budget deficits. 
B) consumer spending. 
C) investment spending. 
D) net exports. 
A) budget deficits. 
B) consumer spending. 
C) investment spending. 
D) net exports.

Question 5

A fiscal policy that reduces taxes or increases government spending will cause a(n)

Accepted Answer

A) increase in real GDP and a decrease in the price level. 
B) increase in real GDP and an increase in the price level. 
C) decrease in real GDP and a decrease in the price level. 
D) decrease in real GDP and an increase in the price level. 
A) increase in real GDP and a decrease in the price level. 
B) increase in real GDP and an increase in the price level. 
C) decrease in real GDP and a decrease in the price level. 
D) decrease in real GDP and an increase in the price level.

Question 6

Critics of supply-side economics argue that tax cuts favored by supply-siders will have the greatest effect on

Accepted Answer

A) aggregate supply. 
B) tax receipts. 
C) aggregate demand. 
D) the money supply. 
A) aggregate supply. 
B) tax receipts. 
C) aggregate demand. 
D) the money supply.

Question 7

A one-dollar tax reduction has the same effect as a one-dollar increase in government purchases.

Accepted Answer

A) True 
 B)False

Question 8

Income taxes and transfer payments help prevent extreme macroeconomic fluctuations.

Accepted Answer

A) True 
 B)False

Question 9

Government purchases and income taxes have the same effect on the multiplier.

Accepted Answer

A) True 
 B)False

Question 10

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.

Exam 28: Managing Aggregate Demand: Fiscal Policy

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

Taxes constitute the difference between GDP and disposable income.

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?

Supply-side tax cuts are more likely to have the intended beneficial effect on

A fiscal policy that reduces taxes or increases government spending will cause a(n)

Critics of supply-side economics argue that tax cuts favored by supply-siders will have the greatest effect on

A one-dollar tax reduction has the same effect as a one-dollar increase in government purchases.

Income taxes and transfer payments help prevent extreme macroeconomic fluctuations.

Government purchases and income taxes have the same effect on the multiplier.

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

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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