Question 1

An advocate of supply-side fiscal policy would advocate which of the following?

Accepted Answer

A)  Subsidies to produce technological advances. 
B)  Reduction in regulation. 
C)  Reduction in resource prices. 
D)  Reduction in taxes. 
E)  All of the above. 
A)  Subsidies to produce technological advances. 
B)  Reduction in regulation. 
C)  Reduction in resource prices. 
D)  Reduction in taxes. 
E)  All of the above.

Question 2

If the marginal propensity to consume (MPC)is 0.75,and if policy makers wish to increase real GDP by $300 million,then by how much would they have to change taxes?

Accepted Answer

A)  -$300 million. 
B)  -$200 million. 
C)  -100 million. 
D)  -$50 million. 
A)  -$300 million. 
B)  -$200 million. 
C)  -100 million. 
D)  -$50 million.

Question 3

Discuss the differences between Keynesian and supply-side fiscal policies?

Accepted Answer

The essential difference is that Keynesi

Question 4

A decrease in real GDP would affect the U.S.economy by:

Accepted Answer

A)  cutting tax revenues and raising government expenditures. 
B)  cutting government expenditures and raising tax revenues. 
C)  raising both tax revenues and government expenditures. 
D)  cutting both government expenditures and tax revenues. 
A)  cutting tax revenues and raising government expenditures. 
B)  cutting government expenditures and raising tax revenues. 
C)  raising both tax revenues and government expenditures. 
D)  cutting both government expenditures and tax revenues.

Question 5

Fiscal policy is government action to influence aggregate demand and in turn to influence the level of real GDP and the price level,through:

Accepted Answer

A)  expanding and contracting the money supply. 
B)  regulation of net exports. 
C)  changes in government spending and/or tax revenues. 
D)  encouraging businesses to invest. 
A)  expanding and contracting the money supply. 
B)  regulation of net exports. 
C)  changes in government spending and/or tax revenues. 
D)  encouraging businesses to invest.

Question 6

Exhibit 15-2 Aggregate demand and supply model
  
-Suppose the economy in Exhibit 15-2 is in equilibrium at point E₁ and the marginal propensity to consume (MPC)is 0.75.Following Keynesian economics,the federal government can move the economy to full employment at point E₂ by:

Accepted Answer

A)  decreasing government spending by $750 billion. 
B)  decreasing government spending by $100 billion. 
C)  increasing government spending by $25 billion. 
D)  decreasing government spending by $25 billion. 
E)  None of the above. 
A)  decreasing government spending by $750 billion. 
B)  decreasing government spending by $100 billion. 
C)  increasing government spending by $25 billion. 
D)  decreasing government spending by $25 billion. 
E)  None of the above.

Question 7

Supply-side economists:

Accepted Answer

A)  saw influence beyond in both the Bush and Clinton administrations. 
B)  disagreed with economist Arthur Laffer's views on taxes. 
C)  were influential in President Reagan's decision to change the tax structure. 
D)  believe that government regulations do not reduce productivity and undermine industrial efficiency. 
A)  saw influence beyond in both the Bush and Clinton administrations. 
B)  disagreed with economist Arthur Laffer's views on taxes. 
C)  were influential in President Reagan's decision to change the tax structure. 
D)  believe that government regulations do not reduce productivity and undermine industrial efficiency.

Question 8

According to Keynesian economics,fiscal policy should be coordinated to create a surplus during economic expansions.

Accepted Answer

A) True 
 B)False

Question 9

Keynesian economics focuses on the role of aggregate spending in determining the level of real GDP.

Accepted Answer

A) True 
 B)False

Question 10

The Laffer curve belongs to which of the following schools of economic thought?

Accepted Answer

A)  Keynesian. 
B)  Supply-side. 
C)  Demand management. 
D)  Classical. 
A)  Keynesian. 
B)  Supply-side. 
C)  Demand management. 
D)  Classical.

Question 11

Following Keynesian economics,and assuming a marginal propensity to consume (MPC)of 0.75,an increase in federal government spending of $100 billion at below full employment would be expected to shift the aggregate demand curve by $300 billion to the right.

Accepted Answer

A) True 
 B)False

Question 12

The tax multiplier is greater than the spending multiplier regardless of the value of the marginal propensity to consume (MPC).

Accepted Answer

A) True 
 B)False

Question 13

If your income increases from $30,000 to $35,000 and your consumption increases from $11,000 to $12,000,your marginal propensity to consume (MPC)is:

Accepted Answer

A)  0.2. 
B)  0.4. 
C)  0.5. 
D)  0.8. 
E)  1.0. 
A)  0.2. 
B)  0.4. 
C)  0.5. 
D)  0.8. 
E)  1.0.

Question 14

Suppose inflation is a threat because the current aggregate demand curve will increase by $600 billion at any price level.If the marginal propensity to consume is 0.75,federal policymakers can follow Keynesian economics and restrain inflation by:

Accepted Answer

A)  decreasing tax revenues by $600 billion. 
B)  decreasing government spending by $200 billion. 
C)  increasing tax revenues by $200 billion. 
D)  increasing government purchases by $150 billion. 
A)  decreasing tax revenues by $600 billion. 
B)  decreasing government spending by $200 billion. 
C)  increasing tax revenues by $200 billion. 
D)  increasing government purchases by $150 billion.

Question 15

Exhibit 15-4 Aggregate demand and supply model
  
-Suppose the economy in Exhibit 15-4 is in equilibrium at point E₁ and the marginal propensity to consume (MPC)is 0.75.Following Keynesian economics,the federal government can move the economy to point E₂ and reduce inflation by:

Accepted Answer

A)  decreasing government spending by $750 billion. 
B)  decreasing government spending by $100 billion. 
C)  increasing government spending by $25 billion. 
D)  decreasing government spending by $25 billion. 
A)  decreasing government spending by $750 billion. 
B)  decreasing government spending by $100 billion. 
C)  increasing government spending by $25 billion. 
D)  decreasing government spending by $25 billion.

Question 16

The marginal propensity to consume is:

Accepted Answer

A)  the change in income divided by the change in consumption. 
B)  consumption spending divided by income. 
C)  income divided by consumption spending. 
D)  the change in consumption divided by the change in income. 
E)  the change in consumption divided by income. 
A)  the change in income divided by the change in consumption. 
B)  consumption spending divided by income. 
C)  income divided by consumption spending. 
D)  the change in consumption divided by the change in income. 
E)  the change in consumption divided by income.

Question 17

Which of the following favors government policies to stimulate the economy by creating incentives for individuals and businesses to increase their productive efforts?

Accepted Answer

A)  supply-side economics. 
B)  Keynesian economics. 
C)  monetarist economics. 
D)  Marxian economics. 
A)  supply-side economics. 
B)  Keynesian economics. 
C)  monetarist economics. 
D)  Marxian economics.

Question 18

Which of the following is an example of expansionary fiscal policy?

Accepted Answer

A)  Increase taxes. 
B)  Decrease government spending. 
C)  Increase government spending. 
D)  Increase taxes and decrease government spending equally. 
A)  Increase taxes. 
B)  Decrease government spending. 
C)  Increase government spending. 
D)  Increase taxes and decrease government spending equally.

Question 19

According to supply-side fiscal policy,reducing tax rates on wages and profits will:

Accepted Answer

A)  create demand-pull inflation. 
B)  lower the price level but may trigger a recession. 
C)  result in stagflation. 
D)  reduce both unemployment and inflation. 
A)  create demand-pull inflation. 
B)  lower the price level but may trigger a recession. 
C)  result in stagflation. 
D)  reduce both unemployment and inflation.

Question 20

A balanced budget is present when:

Accepted Answer

A)  the economy is at full employment. 
B)  the actual level of aggregate spending equals the planned level of spending. 
C)  public sector spending equals private sector spending. 
D)  government revenues equal government expenditures. 
A)  the economy is at full employment. 
B)  the actual level of aggregate spending equals the planned level of spending. 
C)  public sector spending equals private sector spending. 
D)  government revenues equal government expenditures.

Exam 15: Fiscal Policy

An advocate of supply-side fiscal policy would advocate which of the following?

If the marginal propensity to consume (MPC)is 0.75,and if policy makers wish to increase real GDP by $300 million,then by how much would they have to change taxes?

Discuss the differences between Keynesian and supply-side fiscal policies?

A decrease in real GDP would affect the U.S.economy by:

Fiscal policy is government action to influence aggregate demand and in turn to influence the level of real GDP and the price level,through:

Exhibit 15-2 Aggregate demand and supply model -Suppose the economy in Exhibit 15-2 is in equilibrium at point E₁ and the marginal propensity to consume (MPC)is 0.75.Following Keynesian economics,the federal government can move the economy to full employment at point E₂ by:

Supply-side economists:

According to Keynesian economics,fiscal policy should be coordinated to create a surplus during economic expansions.

Keynesian economics focuses on the role of aggregate spending in determining the level of real GDP.

The Laffer curve belongs to which of the following schools of economic thought?

Following Keynesian economics,and assuming a marginal propensity to consume (MPC)of 0.75,an increase in federal government spending of $100 billion at below full employment would be expected to shift the aggregate demand curve by $300 billion to the right.

The tax multiplier is greater than the spending multiplier regardless of the value of the marginal propensity to consume (MPC).

If your income increases from $30,000 to $35,000 and your consumption increases from $11,000 to $12,000,your marginal propensity to consume (MPC)is:

Suppose inflation is a threat because the current aggregate demand curve will increase by $600 billion at any price level.If the marginal propensity to consume is 0.75,federal policymakers can follow Keynesian economics and restrain inflation by:

Exhibit 15-4 Aggregate demand and supply model -Suppose the economy in Exhibit 15-4 is in equilibrium at point E₁ and the marginal propensity to consume (MPC)is 0.75.Following Keynesian economics,the federal government can move the economy to point E₂ and reduce inflation by:

The marginal propensity to consume is:

Which of the following favors government policies to stimulate the economy by creating incentives for individuals and businesses to increase their productive efforts?

Which of the following is an example of expansionary fiscal policy?

According to supply-side fiscal policy,reducing tax rates on wages and profits will:

A balanced budget is present when:

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

A: Appendix: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters