Question 1

If the federal government increases the amount of Social Security benefits for retired persons, then the

Accepted Answer

A) consumption schedule will shift upward. 
B) aggregate demand curve will shift outward. 
C) effect on equilibrium GDP will be the same as a cut in taxes. 
D) All of the above are correct. 
A) consumption schedule will shift upward. 
B) aggregate demand curve will shift outward. 
C) effect on equilibrium GDP will be the same as a cut in taxes. 
D) All of the above are correct.

Question 2

Why is the personal income tax considered to be one of the main features of our modern economy that helps ensure against a repeat performance of the Great Depression?

Accepted Answer

Income tax is considered an automatic st

Question 3

Transfer payments exactly replace the income lost because of taxes.

Accepted Answer

A) True 
 B)False

Question 4

Assume that the government is considering different policies to increase total expenditures in order to reduce unemployment.Which of the following would achieve this objective?

Accepted Answer

A) decreasing taxes 
B) increasing government spending 
C) increasing transfer payments 
D) All of the above are correct. 
A) decreasing taxes 
B) increasing government spending 
C) increasing transfer payments 
D) All of the above are correct.

Question 5

Suppose the federal government is considering alternatives to increase the level of real GDP in order to reduce unemployment.It can only do one of the following.Which will have the smallest impact on the federal budget?

Accepted Answer

A) decreasing transfer payments 
B) increasing government spending 
C) increasing transfer payments 
D) decreasing government spending 
A) decreasing transfer payments 
B) increasing government spending 
C) increasing transfer payments 
D) decreasing government spending

Question 6

Decreasing aggregate demand to eliminate an inflationary gap often creates the problem of

Accepted Answer

A) unemployment. 
B) increasing real GDP. 
C) increasing inflation. 
D) increasing the labor force. 
A) unemployment. 
B) increasing real GDP. 
C) increasing inflation. 
D) increasing the labor force.

Question 7

Reducing transfer payments is an appropriate way to counteract a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 8

In contrast to changes in government spending, tax changes affect spending

Accepted Answer

A) directly. 
B) in the same proportion. 
C) by a greater amount. 
D) indirectly. 
A) directly. 
B) in the same proportion. 
C) by a greater amount. 
D) indirectly.

Question 9

Figure 11-2
  
-Which graph in Figure 11-2 best reflects a Keynesian's view of the short-run impact of an increase in the personal income tax rate?

Accepted Answer

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

Question 10

If a "liberal" wanted to decrease aggregate demand, which of the following would 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 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 makes the public sector larger. 
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 makes the public sector larger.

Question 11

In the middle of a severe recession, Congress passes an increase in the level of unemployment benefits.This would be considered by economists as a

Accepted Answer

A) positive tax. 
B) negative tax. 
C) form of government purchases. 
D) variable tax. 
A) positive tax. 
B) negative tax. 
C) form of government purchases. 
D) variable tax.

Question 12

Critics of supply-side economics argue that

Accepted Answer

A) tax cuts do not affect supply, only demand. 
B) supply-siders exaggerate the effects of tax cuts. 
C) incentives have no effect on behavior. 
D) the goals of supply-siders are not supported by most economists. 
A) tax cuts do not affect supply, only demand. 
B) supply-siders exaggerate the effects of tax cuts. 
C) incentives have no effect on behavior. 
D) the goals of supply-siders are not supported by most economists.

Question 13

Federal budget deficits are often increased by supply-side policies because of their reliance on

Accepted Answer

A) income tax cuts. 
B) income tax increases. 
C) increased government spending. 
D) decreased government spending. 
A) income tax cuts. 
B) income tax increases. 
C) increased government spending. 
D) decreased government spending.

Question 14

If personal income taxes are increased, disposable income and consumption

Accepted Answer

A) increase. 
B) stay the same. 
C) decrease. 
D) change in an unpredictable direction. 
A) increase. 
B) stay the same. 
C) decrease. 
D) change in an unpredictable direction.

Question 15

Do policy makers know the exact value of the fiscal multiplier?

Accepted Answer

A) No, economists have almost no idea of the value of fiscal multipliers. 
B) No, they are not known with complete accuracy. 
C) Yes, economists know the precise value of the multiplier. 
D) Yes, although there is a very small range of uncertainty in the value. 
A) No, economists have almost no idea of the value of fiscal multipliers. 
B) No, they are not known with complete accuracy. 
C) Yes, economists know the precise value of the multiplier. 
D) Yes, although there is a very small range of uncertainty in the value.

Question 16

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 17

In 2009, the U.S.economy was experiencing a(n)

Accepted Answer

A) recessionary gap. 
B) inflationary gap. 
C) balance of trade deficit. 
D) hyperinflation. 
A) recessionary gap. 
B) inflationary gap. 
C) balance of trade deficit. 
D) hyperinflation.

Question 18

Which of the following observations is true?

Accepted Answer

A) Increase in taxes shifts the consumption schedule upward. 
B) Tax reductions increase equilibrium GDP. 
C) Taxes reduce total spending directly. 
D) Taxes do not have a multiplier effect on equilibrium GDP. 
A) Increase in taxes shifts the consumption schedule upward. 
B) Tax reductions increase equilibrium GDP. 
C) Taxes reduce total spending directly. 
D) Taxes do not have a multiplier effect on equilibrium GDP.

Question 19

In an effort to balance the federal budget, an increase in Social Security taxes is passed.What is the most likely effect of this on equilibrium GDP?

Accepted Answer

A) GDP will increase. 
B) GDP will decrease. 
C) GDP will not change but prices will rise. 
D) GDP will not change but employment will increase. 
A) GDP will increase. 
B) GDP will decrease. 
C) GDP will not change but prices will rise. 
D) GDP will not change but employment will increase.

Question 20

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.

Exam 28: Managing Aggregate Demand: Fiscal Policy

If the federal government increases the amount of Social Security benefits for retired persons, then the

Why is the personal income tax considered to be one of the main features of our modern economy that helps ensure against a repeat performance of the Great Depression?

Transfer payments exactly replace the income lost because of taxes.

Assume that the government is considering different policies to increase total expenditures in order to reduce unemployment.Which of the following would achieve this objective?

Suppose the federal government is considering alternatives to increase the level of real GDP in order to reduce unemployment.It can only do one of the following.Which will have the smallest impact on the federal budget?

Decreasing aggregate demand to eliminate an inflationary gap often creates the problem of

Reducing transfer payments is an appropriate way to counteract a recessionary gap.

In contrast to changes in government spending, tax changes affect spending

Figure 11-2 -Which graph in Figure 11-2 best reflects a Keynesian's view of the short-run impact of an increase in the personal income tax rate?

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

In the middle of a severe recession, Congress passes an increase in the level of unemployment benefits.This would be considered by economists as a

Critics of supply-side economics argue that

Federal budget deficits are often increased by supply-side policies because of their reliance on

If personal income taxes are increased, disposable income and consumption

Do policy makers know the exact value of the fiscal multiplier?

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

In 2009, the U.S.economy was experiencing a(n)

Which of the following observations is true?

In an effort to balance the federal budget, an increase in Social Security taxes is passed.What is the most likely effect of this on equilibrium GDP?

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?

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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