Question 1

The use of spending and taxes by the government to influence aggregate demand is known as

Accepted Answer

A) monetary policy. 
B) governmental policy. 
C) administrative policy. 
D) fiscal policy. 
E) federal policy. 
A) monetary policy. 
B) governmental policy. 
C) administrative policy. 
D) fiscal policy. 
E) federal policy.

Question 2

Compared to an economy's self-correcting mechanism, active contractionary fiscal policy will

Accepted Answer

A) work more slowly and calmly. 
B) work more quickly. 
C) have less deflationary effects. 
D) have a smaller effect on real GDP. 
A) work more slowly and calmly. 
B) work more quickly. 
C) have less deflationary effects. 
D) have a smaller effect on real GDP.

Question 3

The oversimplified formula for the multiplier yields a number that is too large due to the exclusion of

Accepted Answer

A) variable imports. 
B) changes in the price-level. 
C) income taxes. 
D) All of the above. 
A) variable imports. 
B) changes in the price-level. 
C) income taxes. 
D) All of the above.

Question 4

President George W.Bush, who favored a smaller government sector,

Accepted Answer

A) believed we should increase G to eliminate a recessionary gap. 
B) believed we should raise taxes to eliminate an inflationary gap. 
C) favored an active fiscal policy just as well as those who favor a larger government sector. 
D) argued against the use of an active fiscal policy. 
A) believed we should increase G to eliminate a recessionary gap. 
B) believed we should raise taxes to eliminate an inflationary gap. 
C) favored an active fiscal policy just as well as those who favor a larger government sector. 
D) argued against the use of an active fiscal policy.

Question 5

Government transfer payments

Accepted Answer

A) are subtracted from national income to obtain disposable income. 
B) can be considered as negative taxes. 
C) intervene between national product and disposable income in the same way as taxes. 
D) are counted the same as taxes in computing national income. 
A) are subtracted from national income to obtain disposable income. 
B) can be considered as negative taxes. 
C) intervene between national product and disposable income in the same way as taxes. 
D) are counted the same as taxes in computing national income.

Question 6

If Congress votes to increase government purchases and at the same time decrease personal income taxes, they

Accepted Answer

A) have decided to balance the federal budget. 
B) have voted for the proper policy to counteract a recessionary gap. 
C) have voted for the proper policy to counteract an inflationary gap. 
D) are trying to achieve a federal budget surplus. 
A) have decided to balance the federal budget. 
B) have voted for the proper policy to counteract a recessionary gap. 
C) have voted for the proper policy to counteract an inflationary gap. 
D) are trying to achieve a federal budget surplus.

Question 7

In the determination of disposable income, transfer payments are treated as if they

Accepted Answer

A) are the same as taxes. 
B) did not exist. 
C) are the opposite of taxes. 
D) were a constant amount. 
A) are the same as taxes. 
B) did not exist. 
C) are the opposite of taxes. 
D) were a constant amount.

Question 8

President Obama would generally advocate increased spending when the economy needs stimulus and increased taxation when the economy needs to be restricted.

Accepted Answer

A) True 
 B)False

Question 9

In order to maintain a balanced budget, Congress has decided to cut taxes and government spending both by $25 billion.What will happen to GDP?

Accepted Answer

A) It will increase. 
B) It will remain the same. 
C) It will decrease. 
D) It's impossible to know without the multiplier. 
A) It will increase. 
B) It will remain the same. 
C) It will decrease. 
D) It's impossible to know without the multiplier.

Question 10

In the short run, tax cuts that are intended to increase aggregate supply have

Accepted Answer

A) almost no effect on aggregate demand, and a small effect on aggregate supply. 
B) about an equal effect on both aggregate demand and aggregate supply. 
C) a much greater effect on aggregate demand than on aggregate supply. 
D) almost no effect on aggregate supply, and a negative effect on aggregate demand. 
A) almost no effect on aggregate demand, and a small effect on aggregate supply. 
B) about an equal effect on both aggregate demand and aggregate supply. 
C) a much greater effect on aggregate demand than on aggregate supply. 
D) almost no effect on aggregate supply, and a negative effect on aggregate demand.

Question 11

In 2009, the U.S.economy was experiencing an inflationary gap.

Accepted Answer

A) True 
 B)False

Question 12

For any given change in taxes, the multiplier

Accepted Answer

A) will work indirectly through consumption. 
B) effect will occur in two steps. 
C) effect will be smaller than for an equivalent dollar change in government spending. 
D) All of the above are correct. 
A) will work indirectly through consumption. 
B) effect will occur in two steps. 
C) effect will be smaller than for an equivalent dollar change in government spending. 
D) All of the above are correct.

Question 13

Most supply-side initiatives have the effect of reducing inequality.

Accepted Answer

A) True 
 B)False

Question 14

Taxes, transfer payments, and government purchases are the components of automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 15

How does an increase in government transfer payments affect aggregate demand?

Accepted Answer

A) It has the same effect as a tax increase, which lowers AD with a larger multiplier than a spending decrease. 
B) It has the same effect as a tax cut, which increases AD but with a smaller multiplier than a change in spending. 
C) It has the same effect as a spending increase, which increases AD with a larger multiplier than a tax cut. 
D) It has the same effect as a spending decrease, which increases AD with a larger multiplier than a spending decrease. 
A) It has the same effect as a tax increase, which lowers AD with a larger multiplier than a spending decrease. 
B) It has the same effect as a tax cut, which increases AD but with a smaller multiplier than a change in spending. 
C) It has the same effect as a spending increase, which increases AD with a larger multiplier than a tax cut. 
D) It has the same effect as a spending decrease, which increases AD with a larger multiplier than a spending decrease.

Question 16

If the federal government wishes to move the economy out of a recessionary gap, the appropriate fiscal policy is a(n)

Accepted Answer

A) increase in taxes. 
B) decrease in government purchases. 
C) decrease in transfer payments. 
D) None of the above are correct. 
A) increase in taxes. 
B) decrease in government purchases. 
C) decrease in transfer payments. 
D) None of the above are correct.

Question 17

Why does a tax change affect aggregate demand?

Accepted Answer

A) A tax change alters saving by an equal amount. 
B) A tax change alters imports and net exports. 
C) A tax change alters government spending by an equal amount. 
D) A tax change alters disposable income and consumption spending. 
A) A tax change alters saving by an equal amount. 
B) A tax change alters imports and net exports. 
C) A tax change alters government spending by an equal amount. 
D) A tax change alters disposable income and consumption spending.

Question 18

After September 11, 2001, President George W.Bush believed in the need for a fiscal stimulus.The proper fiscal policy to reflect this could include a(n)

Accepted Answer

A) increase in taxes. 
B) reduction in transfer payments. 
C) increase in government purchases. 
D) All of the above are correct. 
A) increase in taxes. 
B) reduction in transfer payments. 
C) increase in government purchases. 
D) All of the above are correct.

Question 19

For conservatives, the United States needs

Accepted Answer

A) an expanded public sector to protect consumers. 
B) a smaller public sector and less regulation. 
C) a larger tax rate and more government spending. 
D) more public goods and services, such as national health care. 
A) an expanded public sector to protect consumers. 
B) a smaller public sector and less regulation. 
C) a larger tax rate and more government spending. 
D) more public goods and services, such as national health care.

Question 20

Reductions in the personal income tax, often advocated by supply-siders to increase labor supply and effort, can be expected to also

Accepted Answer

A) decrease consumption spending. 
B) increase consumption spending. 
C) decrease investment spending. 
D) increase export sales. 
A) decrease consumption spending. 
B) increase consumption spending. 
C) decrease investment spending. 
D) increase export sales.

Exam 28: Managing Aggregate Demand: Fiscal Policy

The use of spending and taxes by the government to influence aggregate demand is known as

Compared to an economy's self-correcting mechanism, active contractionary fiscal policy will

The oversimplified formula for the multiplier yields a number that is too large due to the exclusion of

President George W.Bush, who favored a smaller government sector,

Government transfer payments

If Congress votes to increase government purchases and at the same time decrease personal income taxes, they

In the determination of disposable income, transfer payments are treated as if they

President Obama would generally advocate increased spending when the economy needs stimulus and increased taxation when the economy needs to be restricted.

In order to maintain a balanced budget, Congress has decided to cut taxes and government spending both by $25 billion.What will happen to GDP?

In the short run, tax cuts that are intended to increase aggregate supply have

In 2009, the U.S.economy was experiencing an inflationary gap.

For any given change in taxes, the multiplier

Most supply-side initiatives have the effect of reducing inequality.

Taxes, transfer payments, and government purchases are the components of automatic stabilizers.

How does an increase in government transfer payments affect aggregate demand?

If the federal government wishes to move the economy out of a recessionary gap, the appropriate fiscal policy is a(n)

Why does a tax change affect aggregate demand?

After September 11, 2001, President George W.Bush believed in the need for a fiscal stimulus.The proper fiscal policy to reflect this could include a(n)

For conservatives, the United States needs

Reductions in the personal income tax, often advocated by supply-siders to increase labor supply and effort, can be expected to also

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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