Question 1

Because the income tax is progressive,the amount of taxes paid is a

Accepted Answer

A) constant fraction of income throughout the business cycle (i.e.,as the economy experiences considerable fluctuation) 
B) larger fraction of income in expansions than in contractions 
C) smaller fraction of income in expansions than in contractions 
D) decreasing function of income in both expansions and contractions 
E) constant amount 
A) constant fraction of income throughout the business cycle (i.e.,as the economy experiences considerable fluctuation) 
B) larger fraction of income in expansions than in contractions 
C) smaller fraction of income in expansions than in contractions 
D) decreasing function of income in both expansions and contractions 
E) constant amount

Question 2

Exhibit 11-3  
-In Exhibit 11-3,if the government wants to eliminate the recessionary gap it should _______ government spending by _______.

Accepted Answer

A) increase; $2 trillion 
B) decrease; $2 trillion 
C) decrease; $2 trillion x (1 - MP
C)  
D) increase; $2 trillion x (1 - MP
C)  
E) decrease; $2 trillion x 1/(1-MP
C)  
A) increase; $2 trillion 
B) decrease; $2 trillion 
C) decrease; $2 trillion x (1 - MP
C)  
D) increase; $2 trillion x (1 - MP
C)  
E) decrease; $2 trillion x 1/(1-MP
C)

Question 3

When the government closes an expansionary gap with a change in government spending,the __________ in government spending leads to __________.

Accepted Answer

A) decrease; a decrease in both real GDP and the price level 
B) decrease; a decrease in real GDP and an increase in the price level 
C) decrease; an increase in both real GDP and the price level 
D) decrease; an increase in real GDP and a decrease in the price level 
E) increase; a decrease in both real GDP and the price level 
A) decrease; a decrease in both real GDP and the price level 
B) decrease; a decrease in real GDP and an increase in the price level 
C) decrease; an increase in both real GDP and the price level 
D) decrease; an increase in real GDP and a decrease in the price level 
E) increase; a decrease in both real GDP and the price level

Question 4

Exhibit 11-3  
-In an economy characterized by Exhibit 11-3,there is a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 5

The steeper the short-run aggregate supply curve,

Accepted Answer

A) the smaller the impact of a shift in aggregate demand on equilibrium output 
B) the larger the value of the spending multiplier 
C) the larger the impact of a shift in aggregate demand on equilibrium output 
D) the smaller the change in government spending needed to achieve the desired change in equilibrium output 
E) the flatter the aggregate demand curve 
A) the smaller the impact of a shift in aggregate demand on equilibrium output 
B) the larger the value of the spending multiplier 
C) the larger the impact of a shift in aggregate demand on equilibrium output 
D) the smaller the change in government spending needed to achieve the desired change in equilibrium output 
E) the flatter the aggregate demand curve

Question 6

The tax cut of 1964 (proposed by President Kennedy)

Accepted Answer

A) was the last time fiscal policy was used 
B) was the greatest failure as a demand-management tool 
C) actually increased investment,consumption,and employment 
D) shifted the aggregate demand curve leftward 
E) was the first time the focus moved away from managing aggregate demand to focus exclusively on aggregate supply 
A) was the last time fiscal policy was used 
B) was the greatest failure as a demand-management tool 
C) actually increased investment,consumption,and employment 
D) shifted the aggregate demand curve leftward 
E) was the first time the focus moved away from managing aggregate demand to focus exclusively on aggregate supply

Question 7

Which of the following is not true about classical economists?

Accepted Answer

A) They criticized mercantilism as an economic system. 
B) They advocated laissez-faire policies to promote economic growth. 
C) They believed the economy would naturally tend toward full employment. 
D) They believed prices and wages react slowly to market changes. 
E) They discouraged government intervention in markets. 
A) They criticized mercantilism as an economic system. 
B) They advocated laissez-faire policies to promote economic growth. 
C) They believed the economy would naturally tend toward full employment. 
D) They believed prices and wages react slowly to market changes. 
E) They discouraged government intervention in markets.

Question 8

Which of the following best illustrates the use of discretionary fiscal policy?

Accepted Answer

A) Congress provides $1 billion in relief aid for hurricane victims. 
B) Congress appropriates $500 million to help the needy,and the appropriation is financed by a tax on wealth. 
C) Income tax receipts are smaller because of a decline in real GDP during a recession. 
D) The Federal Reserve tightens credit when it receives news of accelerating inflation. 
E) Congress passes a bill authorizing $2 billion in additional spending when it receives news of a deepening recession. 
A) Congress provides $1 billion in relief aid for hurricane victims. 
B) Congress appropriates $500 million to help the needy,and the appropriation is financed by a tax on wealth. 
C) Income tax receipts are smaller because of a decline in real GDP during a recession. 
D) The Federal Reserve tightens credit when it receives news of accelerating inflation. 
E) Congress passes a bill authorizing $2 billion in additional spending when it receives news of a deepening recession.

Question 9

Exhibit 11-1  
-In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS50 in Exhibit 11-1,what would be the size of the recessionary gap?

Accepted Answer

A) $500 
B) $400 
C) $300 
D) $200 
E) $100 
A) $500 
B) $400 
C) $300 
D) $200 
E) $100

Question 10

If the government wants to increase equilibrium by $100 billion through a change in autonomous net taxes,it could __________ autonomous net taxes by __________.

Accepted Answer

A) increase; $100 billion 
B) decrease; $100 billion 
C) decrease; $100 billion $\times$ MPC/(1 - MP
C)  
D) increase; $100 billion $\times$ MPC/(1 - MP
C)  
E) decrease; $100 billion $\times$ (1 - MP
C) /MPC 
A) increase; $100 billion 
B) decrease; $100 billion 
C) decrease; $100 billion $\times$ MPC/(1 - MP
C)  
D) increase; $100 billion $\times$ MPC/(1 - MP
C)  
E) decrease; $100 billion $\times$ (1 - MP
C) /MPC

Question 11

Because natural market forces may take a long time to close a contractionary gap,governments often turn to discretionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 12

Supply-side economics emphasized government policies to

Accepted Answer

A) stimulate aggregate demand 
B) increase minimum wage to improve labor productivity 
C) stimulate real GDP by improving incentives to work 
D) lower interest rates 
E) increase tax revenues of government in order to increase government purchases 
A) stimulate aggregate demand 
B) increase minimum wage to improve labor productivity 
C) stimulate real GDP by improving incentives to work 
D) lower interest rates 
E) increase tax revenues of government in order to increase government purchases

Question 13

The only way in which government can affect aggregate demand is through changes in its own purchases.

Accepted Answer

A) True 
 B)False

Question 14

The flatter the short-run aggregate supply curve,

Accepted Answer

A) the flatter the aggregate demand curve 
B) the larger the value of the spending multiplier 
C) the smaller the value of the spending multiplier 
D) the larger the impact of a shift in aggregate demand on the equilibrium price level 
E) the larger the impact of a shift in aggregate demand on the equilibrium output level 
A) the flatter the aggregate demand curve 
B) the larger the value of the spending multiplier 
C) the smaller the value of the spending multiplier 
D) the larger the impact of a shift in aggregate demand on the equilibrium price level 
E) the larger the impact of a shift in aggregate demand on the equilibrium output level

Question 15

Military spending is a good example of an automatic stabilizer.

Accepted Answer

A) True 
 B)False

Question 16

Keynes thought that one macroeconomic problem is that the economy

Accepted Answer

A) can tend toward an equilibrium level of output that is below the potential level 
B) tends toward a potential level of output that is below the equilibrium level 
C) makes the potential and equilibrium levels of output equal 
D) can be pushed below the equilibrium level of output by fiscal policy 
E) can be pushed below the potential level of output by fiscal policy 
A) can tend toward an equilibrium level of output that is below the potential level 
B) tends toward a potential level of output that is below the equilibrium level 
C) makes the potential and equilibrium levels of output equal 
D) can be pushed below the equilibrium level of output by fiscal policy 
E) can be pushed below the potential level of output by fiscal policy

Question 17

In a study by Edmunds.com,the Cash for Clunkers program was shown to cost the government _____ per additional car sale.

Accepted Answer

A) $6,000 
B) $10,000 
C) $16,000 
D) $20,000 
E) $24,000 
A) $6,000 
B) $10,000 
C) $16,000 
D) $20,000 
E) $24,000

Question 18

John Maynard Keynes believed that

Accepted Answer

A) wages and prices were flexible 
B) wages,prices and interest rates were flexible 
C) wages and prices were relatively inflexible and interest rates would not fall fast enough to restore full employment 
D) market forces pushed the economy toward full employment and full production 
E) investment was always sufficient to bring about full employment 
A) wages and prices were flexible 
B) wages,prices and interest rates were flexible 
C) wages and prices were relatively inflexible and interest rates would not fall fast enough to restore full employment 
D) market forces pushed the economy toward full employment and full production 
E) investment was always sufficient to bring about full employment

Question 19

During World War II,

Accepted Answer

A) aggregate demand,income,and employment increased in the United States 
B) aggregate demand,income,and employment declined in the United States 
C) short-run aggregate supply,income,and employment declined in the United States 
D) short-run aggregate supply fell and income and employment increased in the United States 
E) potential output fell in the United States 
A) aggregate demand,income,and employment increased in the United States 
B) aggregate demand,income,and employment declined in the United States 
C) short-run aggregate supply,income,and employment declined in the United States 
D) short-run aggregate supply fell and income and employment increased in the United States 
E) potential output fell in the United States

Question 20

During the 1970s,demand-management policy

Accepted Answer

A) continued to be highly successful in curing the economy's economic problems 
B) was found to be highly unsuitable in periods of stagflation such as the decade of the 1970s 
C) was so unsuccessful that economists advised a return to the pre-World War II philosophy of fiscal policy 
D) was unsuccessful because the automatic stabilizers no longer influenced the economy 
E) was unsuitable because it affected aggregate supply more than aggregate demand 
A) continued to be highly successful in curing the economy's economic problems 
B) was found to be highly unsuitable in periods of stagflation such as the decade of the 1970s 
C) was so unsuccessful that economists advised a return to the pre-World War II philosophy of fiscal policy 
D) was unsuccessful because the automatic stabilizers no longer influenced the economy 
E) was unsuitable because it affected aggregate supply more than aggregate demand

Exam 12: Fiscal Policy

Because the income tax is progressive,the amount of taxes paid is a

Exhibit 11-3 -In Exhibit 11-3,if the government wants to eliminate the recessionary gap it should _______ government spending by _______.

When the government closes an expansionary gap with a change in government spending,the __________ in government spending leads to __________.

Exhibit 11-3 -In an economy characterized by Exhibit 11-3,there is a recessionary gap.

The steeper the short-run aggregate supply curve,

The tax cut of 1964 (proposed by President Kennedy)

Which of the following is not true about classical economists?

Which of the following best illustrates the use of discretionary fiscal policy?

Exhibit 11-1 -In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS50 in Exhibit 11-1,what would be the size of the recessionary gap?

If the government wants to increase equilibrium by $100 billion through a change in autonomous net taxes,it could __________ autonomous net taxes by __________.

Because natural market forces may take a long time to close a contractionary gap,governments often turn to discretionary fiscal policy.

Supply-side economics emphasized government policies to

The only way in which government can affect aggregate demand is through changes in its own purchases.

The flatter the short-run aggregate supply curve,

Military spending is a good example of an automatic stabilizer.

Keynes thought that one macroeconomic problem is that the economy

In a study by Edmunds.com,the Cash for Clunkers program was shown to cost the government _____ per additional car sale.

John Maynard Keynes believed that

During World War II,

During the 1970s,demand-management policy

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, supply, and Markets

Introduction to Macroeconomics

Tracking the Useconomy

Unemployment and Inflation

Productivity and Growth

Aaggregate Expenditure and Aggregate Demand

Baggregate Expenditure and Aggregate Demand

Aggregate Supply

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy

Macro Policy Debate: Active or Passive

International Trade

Externalities and the Environment

International Finance

Economic Development

understanding Graphs

National Income Accounts

The Algebra of Demand-Side Equilibrium

Filters

Exhibit 11-3 -In Exhibit 11-3,if the government wants to eliminate the recessionary gap it should _ government spending by _.

When the government closes an expansionary gap with a change in government spending,the in government spending leads to .

Exhibit 11-1 -In an economy characterized by the aggregate demand curve AD and the short-run aggregate supply curve SRAS₅₀in Exhibit 11-1,what would be the size of the recessionary gap?

If the government wants to increase equilibrium by $100 billion through a change in autonomous net taxes,it could autonomous net taxes by .