Question 1

Which of the following best describes supply-side economics?

Accepted Answer

A) Labour productivity affects aggregate supply. 
B) Education affects labour productivity which affects aggregate supply. 
C) Education affects the incentive to work, save, and invest and, therefore, aggregate supply. 
D) Tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and, therefore, aggregate supply. 
E) Government spending on products produced by private firms increases aggregate supply. 
A) Labour productivity affects aggregate supply. 
B) Education affects labour productivity which affects aggregate supply. 
C) Education affects the incentive to work, save, and invest and, therefore, aggregate supply. 
D) Tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and, therefore, aggregate supply. 
E) Government spending on products produced by private firms increases aggregate supply.

Question 2

In a closed economy with fixed or autonomous (non-income dependent)taxes, the balanced budget government purchases multiplier is negative.

Accepted Answer

A) True 
 B)False

Question 3

Suppose the government spending multiplier is 2.The federal government cuts spending by   What is the change in GDP if the price level is not held constant?

Accepted Answer

A) an increase of less than $8 billion 
B) an increase equal to $8 billion 
C) an increase of greater than $8 billion 
D) a decrease of less than $8 billion 
E) a decrease of more than $8 billion 
A) an increase of less than $8 billion 
B) an increase equal to $8 billion 
C) an increase of greater than $8 billion 
D) a decrease of less than $8 billion 
E) a decrease of more than $8 billion

Question 4

Explain why the tax multiplier is different from the government purchases multiplier, in both sign and relative magnitude.

Accepted Answer

A dollar change in government purchases

Question 5

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.8, the tax rate is 0.1, and the marginal propensity to import equals 0.2.

Accepted Answer

A) 2.1 
B) 1.9 
C) 1.7 
D) 1.4 
E) 5 
A) 2.1 
B) 1.9 
C) 1.7 
D) 1.4 
E) 5

Question 6

Compare the effect on the price level and real GDP of a decrease in tax rates assuming a supply-side effect versus no supply-side effect.Compared to no supply-side effect, including a supply-side effect for the decrease in tax rates will cause the price level to increase ________ and real GDP to increase ________.

Accepted Answer

A) less; less 
B) less; more 
C) more; less 
D) more; more 
A) less; less 
B) less; more 
C) more; less 
D) more; more

Question 7

A decrease in the tax rate will ________ the disposable income of households and ________ the size of the multiplier effect.

Accepted Answer

A) increase; increase 
B) decrease; increase 
C) increase; decrease 
D) decrease; decrease 
E) increase; not change 
A) increase; increase 
B) decrease; increase 
C) increase; decrease 
D) decrease; decrease 
E) increase; not change

Question 8

Suppose the federal government imposes a $10 billion tax increase.Assume that taxes are fixed, the economy is closed, and the marginal propensity to consume is 0.8.What happens to equilibrium GDP?

Accepted Answer

A) There is a $50 billion increase in equilibrium GDP. 
B) There is a $50 billion decrease in equilibrium GDP. 
C) There is a $40 billion increase in equilibrium GDP. 
D) There is a $40 billion decrease in equilibrium GDP. 
E) There is a $10 billion decrease in equilibrium GDP. 
A) There is a $50 billion increase in equilibrium GDP. 
B) There is a $50 billion decrease in equilibrium GDP. 
C) There is a $40 billion increase in equilibrium GDP. 
D) There is a $40 billion decrease in equilibrium GDP. 
E) There is a $10 billion decrease in equilibrium GDP.

Question 9

Table 12.5  
-Refer to Table 12.5.Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2017 and in 2018 if the federal government does not use fiscal policy.If the federal government uses fiscal policy successfully to keep real GDP at its potential level in 2018, which of the following will be lower than if the federal government had taken no action?

Accepted Answer

A) real GDP and the unemployment rate 
B) real GDP and the inflation rate 
C) real GDP and potential GDP 
D) potential GDP and the inflation rate 
E) interest rates and the participation rate 
A) real GDP and the unemployment rate 
B) real GDP and the inflation rate 
C) real GDP and potential GDP 
D) potential GDP and the inflation rate 
E) interest rates and the participation rate

Question 10

Figure 12.5   Alt text for Figure 12.5: In figure 12.5, a dynamic model of AD-AS.
Long description for Figure 12.5: The x-axis is labelled, real GDP (trillions of 2007 dollars).The y-axis is labelled, price level (CPI).6 lines are shown; SRAS1, SRAS2, AD1, AD2, LRAS1, and LRAS2.Line SRAS1 begins in the bottom left corner and slopes up to the top right corner.Line SRAS2 follows the same slope as line SRAS1, but is plotted to the right.Line AD1 begins at the top left corner and slopes down to the bottom center.Line AD2 follows the same slope as line AD1, but is plotted to the right.Line LRAS1 is perpendicular to the x-axis, and begins from the x-axis value 1.7.Line LRAS2 is perpendicular to the x-axis, and begins from x-axis value 1.9.Line LRAS1 intersects lines AD1 and SRAS1 at point A (1.7, 100).Lines AD2 and SRAS2 intersect at point B (1.86, 102).Points A and B are connected to their respective coordinates on the x and y-axes with dotted lines.Line LRAS2 intersects the lines SRAS1 and SRAS2 near the top end of these lines.Line LRAS2 intersects the lines AD1 and AD2 near the bottom end of these lines.
-Refer to Figure 12.5.In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the federal government would most likely pursue

Accepted Answer

A) expansionary fiscal policy. 
B) contractionary fiscal policy. 
C) expansionary monetary policy. 
D) contractionary monetary policy. 
E) contractionary automatic stabilizers. 
A) expansionary fiscal policy. 
B) contractionary fiscal policy. 
C) expansionary monetary policy. 
D) contractionary monetary policy. 
E) contractionary automatic stabilizers.

Question 11

A cut in tax rates affects equilibrium real GDP through two channels: ________ disposable income and consumer spending, and ________ the size of the multiplier effect.

Accepted Answer

A) decreasing; increasing 
B) decreasing; decreasing 
C) increasing; increasing 
D) increasing; decreasing 
A) decreasing; increasing 
B) decreasing; decreasing 
C) increasing; increasing 
D) increasing; decreasing

Question 12

In absolute value, the tax multiplier is greater than the government purchases multiplier.

Accepted Answer

A) True 
 B)False

Question 13

Cutting taxes

Accepted Answer

A) will lower disposable income and lower spending. 
B) will raise disposable income and lower spending. 
C) will lower disposable income and raise spending. 
D) will raise disposable income and raise spending. 
E) will raise disposable income and raise net exports. 
A) will lower disposable income and lower spending. 
B) will raise disposable income and lower spending. 
C) will lower disposable income and raise spending. 
D) will raise disposable income and raise spending. 
E) will raise disposable income and raise net exports.

Question 14

If real equilibrium GDP is above potential GDP, expansionary fiscal policy should be pursued.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is a likely implication of projected changes in government health care spending?

Accepted Answer

A) falling personal income taxes 
B) falling spending on non-health-related programs 
C) rising spending on postsecondary education 
D) falling government borrowing 
E) rising government revenue 
A) falling personal income taxes 
B) falling spending on non-health-related programs 
C) rising spending on postsecondary education 
D) falling government borrowing 
E) rising government revenue

Question 16

Table 12.1  
-Refer to Table 12.1.Suppose the economy is in the state described by the table above.What problem will occur in the economy if no policy is pursued? What fiscal policy tools could be used to combat the problem? Draw a dynamic aggregate demand and aggregate supply diagram to illustrate the appropriate fiscal policy to use in this situation.

Accepted Answer

@#IMG-DLM& Alt text for Question 18: For question

Question 17

An increase in government spending will force an appreciation of the dollar, which causes net exports to fall.

Accepted Answer

A) True 
 B)False

Question 18

"The Bank of Canada fights recessions by increasing the money supply so people will have more money to spend." What is wrong with this statement and how can it be corrected?

Accepted Answer

The Bank of Canada fights recessions by

Question 19

Suppose real GDP is $1.7 trillion, potential real GDP is $1.8 trillion, and the federal government plans to use fiscal policy to restore the economy to potential real GDP.Assuming a constant price level, the federal government would need to increase government purchases by

Accepted Answer

A) $100 billion. 
B) less than $100 billion. 
C) more than $100 billion. 
D) None of the above is correct.The federal government must decrease government purchases in this case. 
A) $100 billion. 
B) less than $100 billion. 
C) more than $100 billion. 
D) None of the above is correct.The federal government must decrease government purchases in this case.

Question 20

Parliament carries out fiscal policy through changes in

Accepted Answer

A) interest rates and the money supply. 
B) taxes and the interest rate. 
C) government purchases and the money supply. 
D) government purchases and taxes. 
E) transfers to other government and regulations. 
A) interest rates and the money supply. 
B) taxes and the interest rate. 
C) government purchases and the money supply. 
D) government purchases and taxes. 
E) transfers to other government and regulations.

Which of the following best describes supply-side economics?

In a closed economy with fixed or autonomous (non-income dependent)taxes, the balanced budget government purchases multiplier is negative.

Suppose the government spending multiplier is 2.The federal government cuts spending by What is the change in GDP if the price level is not held constant?

Explain why the tax multiplier is different from the government purchases multiplier, in both sign and relative magnitude.

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.8, the tax rate is 0.1, and the marginal propensity to import equals 0.2.

Compare the effect on the price level and real GDP of a decrease in tax rates assuming a supply-side effect versus no supply-side effect.Compared to no supply-side effect, including a supply-side effect for the decrease in tax rates will cause the price level to increase and real GDP to increase .

A decrease in the tax rate will the disposable income of households and the size of the multiplier effect.

Suppose the federal government imposes a $10 billion tax increase.Assume that taxes are fixed, the economy is closed, and the marginal propensity to consume is 0.8.What happens to equilibrium GDP?

A cut in tax rates affects equilibrium real GDP through two channels: disposable income and consumer spending, and the size of the multiplier effect.

In absolute value, the tax multiplier is greater than the government purchases multiplier.

Cutting taxes

If real equilibrium GDP is above potential GDP, expansionary fiscal policy should be pursued.

Which of the following is a likely implication of projected changes in government health care spending?

An increase in government spending will force an appreciation of the dollar, which causes net exports to fall.

"The Bank of Canada fights recessions by increasing the money supply so people will have more money to spend." What is wrong with this statement and how can it be corrected?

Suppose real GDP is $1.7 trillion, potential real GDP is $1.8 trillion, and the federal government plans to use fiscal policy to restore the economy to potential real GDP.Assuming a constant price level, the federal government would need to increase government purchases by

Parliament carries out fiscal policy through changes in

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Supply and Demand

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Bank of Canada

Monetary Policy

Inflation, Unemployment, and Bank of Canada Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Exam 12: Fiscal Policy

Which of the following best describes supply-side economics?

In a closed economy with fixed or autonomous (non-income dependent)taxes, the balanced budget government purchases multiplier is negative.

Suppose the government spending multiplier is 2.The federal government cuts spending by What is the change in GDP if the price level is not held constant?

Explain why the tax multiplier is different from the government purchases multiplier, in both sign and relative magnitude.

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.8, the tax rate is 0.1, and the marginal propensity to import equals 0.2.

A decrease in the tax rate will ________ the disposable income of households and ________ the size of the multiplier effect.

Suppose the federal government imposes a $10 billion tax increase.Assume that taxes are fixed, the economy is closed, and the marginal propensity to consume is 0.8.What happens to equilibrium GDP?

A cut in tax rates affects equilibrium real GDP through two channels: ________ disposable income and consumer spending, and ________ the size of the multiplier effect.

In absolute value, the tax multiplier is greater than the government purchases multiplier.

Cutting taxes

If real equilibrium GDP is above potential GDP, expansionary fiscal policy should be pursued.

Which of the following is a likely implication of projected changes in government health care spending?

An increase in government spending will force an appreciation of the dollar, which causes net exports to fall.

"The Bank of Canada fights recessions by increasing the money supply so people will have more money to spend." What is wrong with this statement and how can it be corrected?

Suppose real GDP is $1.7 trillion, potential real GDP is $1.8 trillion, and the federal government plans to use fiscal policy to restore the economy to potential real GDP.Assuming a constant price level, the federal government would need to increase government purchases by

Parliament carries out fiscal policy through changes in

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Supply and Demand

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Bank of Canada

Monetary Policy

Inflation, Unemployment, and Bank of Canada Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

A decrease in the tax rate will the disposable income of households and the size of the multiplier effect.

A cut in tax rates affects equilibrium real GDP through two channels: disposable income and consumer spending, and the size of the multiplier effect.