Question 1

Figure 11-3
  
-In Figure 11-3, which line represents the change in the consumption schedule caused by a cut in fixed taxes?

Accepted Answer

A) C₁ in graph (a) 
B) C2 in graph (a) 
C) C₁ in graph (b) 
D) C2 in graph (b) 
A) C₁ in graph (a) 
B) C2 in graph (a) 
C) C₁ in graph (b) 
D) C2 in graph (b)

Question 2

Which of the following is one of the main features of our modern economy that helps ensure against a repeat performance of the Great Depression?

Accepted Answer

A) transfer payments 
B) outsourcing 
C) multiplier 
D) personal income tax 
A) transfer payments 
B) outsourcing 
C) multiplier 
D) personal income tax

Question 3

As a result of the recent financial crisis, some analysts believed that the MPC in the U.S.declined.If this is true, the value of the multiplier is now

Accepted Answer

A) smaller. 
B) larger. 
C) the same. 
D) magnified to a larger amount. 
A) smaller. 
B) larger. 
C) the same. 
D) magnified to a larger amount.

Question 4

As a general rule, when an income tax is added to the basic macroeconomic model, what happens to the consumption schedule?

Accepted Answer

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

Question 5

The difference between a fixed tax and a variable tax is that

Accepted Answer

A) fixed taxes can never be changed, but variable taxes can be changed. 
B) a change in fixed taxes has no effect on aggregate demand, but a change in variable taxes has an impact. 
C) a variable tax changes when GDP changes, but a fixed tax does not change with GDP. 
D) a variable tax can be changed easily, whereas changing fixed taxes requires a constitutional amendment. 
A) fixed taxes can never be changed, but variable taxes can be changed. 
B) a change in fixed taxes has no effect on aggregate demand, but a change in variable taxes has an impact. 
C) a variable tax changes when GDP changes, but a fixed tax does not change with GDP. 
D) a variable tax can be changed easily, whereas changing fixed taxes requires a constitutional amendment.

Question 6

Figure 11-1
  
-In Figure 11-1, the economy is experiencing a(n)

Accepted Answer

A) inflationary gap equal to EF. 
B) inflationary gap equal to ET. 
C) recessionary gap equal to ET. 
D) recessionary gap equal to FT. 
A) inflationary gap equal to EF. 
B) inflationary gap equal to ET. 
C) recessionary gap equal to ET. 
D) recessionary gap equal to FT.

Question 7

A reduction in the capital gains tax, often advocated by proponents of supply-side economics, is supposed to stimulate increased

Accepted Answer

A) consumer spending. 
B) net exports. 
C) investment spending. 
D) government spending. 
A) consumer spending. 
B) net exports. 
C) investment spending. 
D) government spending.

Question 8

Supply-side tax cuts also tend to reduce aggregate demand and promote recession.

Accepted Answer

A) True 
 B)False

Question 9

A "conservative" would most likely argue in favor of

Accepted Answer

A) tax increases when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
B) tax cuts when fiscal restraint is necessary, and spending cuts when fiscal stimulus is necessary. 
C) tax cuts when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
D) spending increases when fiscal expansion is necessary, and tax increases when fiscal stimulus is necessary. 
A) tax increases when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
B) tax cuts when fiscal restraint is necessary, and spending cuts when fiscal stimulus is necessary. 
C) tax cuts when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
D) spending increases when fiscal expansion is necessary, and tax increases when fiscal stimulus is necessary.

Question 10

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 11

A conservative who was opposed to an increase in the size of the government sector but believed in the Keynesian approach to aggregate demand management would most likely favor which of the following expansionary policies?

Accepted Answer

A) increase taxes 
B) decrease taxes 
C) increase government spending 
D) decrease government spending 
A) increase taxes 
B) decrease taxes 
C) increase government spending 
D) decrease government spending

Question 12

Do policy makers know the level of unemployment that is associated with "full employment"?

Accepted Answer

A) Yes, economists have the precise level of unemployment that is full employment. 
B) Yes, although there is a small range of uncertainty in this measure. 
C) No, economists have no idea what this level of unemployment is. 
D) No, this number is not known with complete accuracy. 
A) Yes, economists have the precise level of unemployment that is full employment. 
B) Yes, although there is a small range of uncertainty in this measure. 
C) No, economists have no idea what this level of unemployment is. 
D) No, this number is not known with complete accuracy.

Question 13

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 14

During the period from 2001 to 2006, there were several major cuts in personal income tax rates.What effect did these have on the value of the multiplier?

Accepted Answer

A) They decreased the value of the multiplier. 
B) They had no effect on the multiplier. 
C) They increased the value of the multiplier. 
D) The effect was uncertain. 
A) They decreased the value of the multiplier. 
B) They had no effect on the multiplier. 
C) They increased the value of the multiplier. 
D) The effect was uncertain.

Question 15

One of the objectives of supply-side policies is to

Accepted Answer

A) focus attention on the trade-off between inflation and unemployment. 
B) sharpen the trade-off between inflation and unemployment. 
C) eliminate the trade-off between inflation and unemployment. 
D) convince the public of the trade-off between inflation and unemployment. 
A) focus attention on the trade-off between inflation and unemployment. 
B) sharpen the trade-off between inflation and unemployment. 
C) eliminate the trade-off between inflation and unemployment. 
D) convince the public of the trade-off between inflation and unemployment.

Question 16

The oversimplified formula for the multiplier is misleading because it ignores the effects of

Accepted Answer

A) price-level changes. 
B) the foreign sector. 
C) variable taxes. 
D) All of the above are correct. 
A) price-level changes. 
B) the foreign sector. 
C) variable taxes. 
D) All of the above are correct.

Question 17

An increase in Social Security payments to retired persons has what effect on equilibrium income?

Accepted Answer

A) GDP will fall. 
B) GDP will rise. 
C) GDP will remain the same. 
D) GDP will fall by less than the increase in payments. 
A) GDP will fall. 
B) GDP will rise. 
C) GDP will remain the same. 
D) GDP will fall by less than the increase in payments.

Question 18

Which of the following conclusions about supply-side tax initiatives is accepted by most economists?

Accepted Answer

A) Supply-side tax cuts are likely to benefit the poor as much as the rich. 
B) Supply-side tax cuts will almost certainly lead to smaller budget deficits. 
C) Such tax cuts probably will increase aggregate supply quickly, but an increase in aggregate demand will come later. 
D) Tax reductions aimed at stimulating business investment are likely to have a greater impact than tax reductions aimed at getting people to work longer hours or save more. 
A) Supply-side tax cuts are likely to benefit the poor as much as the rich. 
B) Supply-side tax cuts will almost certainly lead to smaller budget deficits. 
C) Such tax cuts probably will increase aggregate supply quickly, but an increase in aggregate demand will come later. 
D) Tax reductions aimed at stimulating business investment are likely to have a greater impact than tax reductions aimed at getting people to work longer hours or save more.

Question 19

The primary goal of supply-side economics is to

Accepted Answer

A) balance the federal budget. 
B) reduce the balance of payments deficit. 
C) reduce the money supply. 
D) reduce inflation and increase growth at the same time. 
A) balance the federal budget. 
B) reduce the balance of payments deficit. 
C) reduce the money supply. 
D) reduce inflation and increase growth at the same time.

Question 20

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.

Exam 28: Managing Aggregate Demand: Fiscal Policy

Figure 11-3 -In Figure 11-3, which line represents the change in the consumption schedule caused by a cut in fixed taxes?

Which of the following is one of the main features of our modern economy that helps ensure against a repeat performance of the Great Depression?

As a result of the recent financial crisis, some analysts believed that the MPC in the U.S.declined.If this is true, the value of the multiplier is now

As a general rule, when an income tax is added to the basic macroeconomic model, what happens to the consumption schedule?

The difference between a fixed tax and a variable tax is that

Figure 11-1 -In Figure 11-1, the economy is experiencing a(n)

A reduction in the capital gains tax, often advocated by proponents of supply-side economics, is supposed to stimulate increased

Supply-side tax cuts also tend to reduce aggregate demand and promote recession.

A "conservative" would most likely argue in favor of

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)

A conservative who was opposed to an increase in the size of the government sector but believed in the Keynesian approach to aggregate demand management would most likely favor which of the following expansionary policies?

Do policy makers know the level of unemployment that is associated with "full employment"?

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

During the period from 2001 to 2006, there were several major cuts in personal income tax rates.What effect did these have on the value of the multiplier?

One of the objectives of supply-side policies is to

The oversimplified formula for the multiplier is misleading because it ignores the effects of

An increase in Social Security payments to retired persons has what effect on equilibrium income?

Which of the following conclusions about supply-side tax initiatives is accepted by most economists?

The primary goal of supply-side economics is to

An increase in taxes shifts the

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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