Question 1

A proponent of supply-side economics would advocate

Accepted Answer

A) increasing income taxes on saving. 
B) reducing corporate income tax. 
C) increasing capital gains tax. 
D) increasing personal income tax. 
A) increasing income taxes on saving. 
B) reducing corporate income tax. 
C) increasing capital gains tax. 
D) increasing personal income tax.

Question 2

Which of the following is a correct conclusion regarding the successful implementation of fiscal policy?

Accepted Answer

A) Successful fiscal policy would be easy to achieve if Congress would stay out of the economy and permit natural market forces to restore full-employment equilibrium. 
B) Successful fiscal policy is difficult to achieve because in the real world the investment, net exports, and consumption schedules are constantly shifting. 
C) Successful fiscal policy is much easier to achieve today because econometric models make economic forecasting much easier. 
D) As the income-expenditure model suggests, fiscal policy planners can move GDP to any level they please by changing tax and spending levels. 
A) Successful fiscal policy would be easy to achieve if Congress would stay out of the economy and permit natural market forces to restore full-employment equilibrium. 
B) Successful fiscal policy is difficult to achieve because in the real world the investment, net exports, and consumption schedules are constantly shifting. 
C) Successful fiscal policy is much easier to achieve today because econometric models make economic forecasting much easier. 
D) As the income-expenditure model suggests, fiscal policy planners can move GDP to any level they please by changing tax and spending levels.

Question 3

Explain some of the steps that a government would wish to adopt in an inflationary environment.

Accepted Answer

In the case of an inflationary gap, real

Question 4

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 5

What is the difference between tax cuts imposed on higher-income households compared with lower- and middle-income households?
 Discuss the implications for the multiplier and the effectiveness of the tax cuts for boosting GDP.

Accepted Answer

Higher-income households tend to save a

Question 6

The multiplier is increased when income taxes are included.

Accepted Answer

A) True 
 B)False

Question 7

Supply-side policy is based on the assumption that people's economic behavior is not affected by taxes.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

1.The likely effectiveness of supply-sid

Question 9

A Keynesian economist would expect a supply-side tax cut to shift

Accepted Answer

A) only the aggregate supply curve outward. 
B) only the aggregate demand curve outward. 
C) both the aggregate demand and aggregate supply curves outward. 
D) the aggregate supply curve outward and the aggregate demand curve inward. 
A) only the aggregate supply curve outward. 
B) only the aggregate demand curve outward. 
C) both the aggregate demand and aggregate supply curves outward. 
D) the aggregate supply curve outward and the aggregate demand curve inward.

Question 10

An increase in taxes will cause the consumption schedule to

Accepted Answer

A) shift upward. 
B) shift downward. 
C) remain fixed as the economy moves upward along the schedule. 
D) remain fixed as the economy moves downward along the schedule. 
A) shift upward. 
B) shift downward. 
C) remain fixed as the economy moves upward along the schedule. 
D) remain fixed as the economy moves downward along the schedule.

Question 11

____ is the income actually available to the consumers that determines aggregate demand.

Accepted Answer

A) Nominal income 
B) Net domestic product 
C) Income corrected for depreciation 
D) Disposable income 
A) Nominal income 
B) Net domestic product 
C) Income corrected for depreciation 
D) Disposable income

Question 12

The main idea behind supply-side tax cuts is that

Accepted Answer

A) tax cuts increase spending, which increases aggregate supply. 
B) some tax cuts can increase aggregate supply. 
C) people like lower taxes and will spend more if they get them. 
D) it is easier to shift aggregate supply than aggregate demand. 
A) tax cuts increase spending, which increases aggregate supply. 
B) some tax cuts can increase aggregate supply. 
C) people like lower taxes and will spend more if they get them. 
D) it is easier to shift aggregate supply than aggregate demand.

Question 13

How does the multiplier for a change in government spending compare to the multiplier for a change in taxes?

Accepted Answer

A) It is smaller. 
B) It is the same. 
C) It is larger. 
D) It cannot be calculated. 
A) It is smaller. 
B) It is the same. 
C) It is larger. 
D) It cannot be calculated.

Question 14

The hallmark of Clintonomics was first to reduce the budget deficit.

Accepted Answer

A) True 
 B)False

Question 15

Changes in government spending

Accepted Answer

A) are an indirect component of the expenditures schedule. 
B) have a different multiplier effect than changes in business investment spending. 
C) are a direct component of the expenditures schedule and have the same multiplier effect as changes in business investment spending. 
D) do not have an effect on spending if they are matched by tax changes. 
A) are an indirect component of the expenditures schedule. 
B) have a different multiplier effect than changes in business investment spending. 
C) are a direct component of the expenditures schedule and have the same multiplier effect as changes in business investment spending. 
D) do not have an effect on spending if they are matched by tax changes.

Question 16

-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

Question 17

A tax reduction shifts the consumption schedule downward.

Accepted Answer

A) True 
 B)False

Question 18

If all variable taxes in the United States were removed and only fixed taxes remained, what would be the effect on the expenditures schedule?

Accepted Answer

A) The expenditure schedule will shift upward and become steeper. 
B) The expenditure schedule will shift upward and become less steep. 
C) The expenditure schedule will shift downward and become less steep. 
D) The expenditure schedule will shift downward and become steeper. 
A) The expenditure schedule will shift upward and become steeper. 
B) The expenditure schedule will shift upward and become less steep. 
C) The expenditure schedule will shift downward and become less steep. 
D) The expenditure schedule will shift downward and become steeper.

Question 19

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 20

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

Accepted Answer

A) An increase in government spending, because it has a larger multiplier than tax changes. 
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 has a larger multiplier than tax changes. 
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.

Exam 28: Managing Aggregate Demand: Fiscal Policy

A proponent of supply-side economics would advocate

Which of the following is a correct conclusion regarding the successful implementation of fiscal policy?

Explain some of the steps that a government would wish to adopt in an inflationary environment.

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

What is the difference between tax cuts imposed on higher-income households compared with lower- and middle-income households? Discuss the implications for the multiplier and the effectiveness of the tax cuts for boosting GDP.

The multiplier is increased when income taxes are included.

Supply-side policy is based on the assumption that people's economic behavior is not affected by taxes.

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

A Keynesian economist would expect a supply-side tax cut to shift

An increase in taxes will cause the consumption schedule to

____ is the income actually available to the consumers that determines aggregate demand.

The main idea behind supply-side tax cuts is that

How does the multiplier for a change in government spending compare to the multiplier for a change in taxes?

The hallmark of Clintonomics was first to reduce the budget deficit.

Changes in government spending

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

A tax reduction shifts the consumption schedule downward.

If all variable taxes in the United States were removed and only fixed taxes remained, what would be the effect on the expenditures schedule?

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

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

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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