Question 1

If MPC = 0.8, a $200 billion increase in government purchases would have what size effect on the "first round" of induced added consumption?

Accepted Answer

A) ​$80 billion 
B) ​$160 billion 
C) ​$200 billion 
D) ​$800 billion 
A) ​$80 billion 
B) ​$160 billion 
C) ​$200 billion 
D) ​$800 billion

Question 2

The larger the marginal propensity to consume, the larger the multiplier effect.

Accepted Answer

A) True 
 B)False

Question 3

A larger crowding-out effect:

Accepted Answer

A) ​increases the magnitude of a given fiscal policy's effect on interest rates and increases the magnitude of its effects on investment. 
B) ​increases the magnitude of a given fiscal policy's effect on interest rates and decreases the magnitude of its effects on investment. 
C) ​decreases the magnitude of a given fiscal policy's effect on interest rates and increases the magnitude of its effects on investment. 
D) ​decreases the magnitude of a given fiscal policy's effect on interest rates and decreases the magnitude of its effects on investment. 
A) ​increases the magnitude of a given fiscal policy's effect on interest rates and increases the magnitude of its effects on investment. 
B) ​increases the magnitude of a given fiscal policy's effect on interest rates and decreases the magnitude of its effects on investment. 
C) ​decreases the magnitude of a given fiscal policy's effect on interest rates and increases the magnitude of its effects on investment. 
D) ​decreases the magnitude of a given fiscal policy's effect on interest rates and decreases the magnitude of its effects on investment.

Question 4

According to the supply-side view of fiscal policy, if the impact on tax revenues is the same, does it make any difference whether the government cuts taxes in a way that reduces marginal tax rates or in a way that does not reduce marginal tax rates?

Accepted Answer

A) ​No; both actions will exert the same impact on aggregate supply and demand. 
B) ​Yes; only lower marginal tax rates will increase the incentive to earn income and thereby stimulate aggregate supply. 
C) ​No; in both cases people will increase their saving in the expectation of higher future taxes and thereby offset the stimulus effect of lower taxes. 
D) ​Yes; interest rates will increase if marginal tax rates are lowered, whereas they will tend to decrease if marginal tax rates are left unchanged. 
A) ​No; both actions will exert the same impact on aggregate supply and demand. 
B) ​Yes; only lower marginal tax rates will increase the incentive to earn income and thereby stimulate aggregate supply. 
C) ​No; in both cases people will increase their saving in the expectation of higher future taxes and thereby offset the stimulus effect of lower taxes. 
D) ​Yes; interest rates will increase if marginal tax rates are lowered, whereas they will tend to decrease if marginal tax rates are left unchanged.

Question 5

A $100 billion increase in government purchases would:

Accepted Answer

A) ​increase AD by $500 billion if MPC = 0.8. 
B) ​decrease AD by $300 billion if MPC = 2/3. 
C) ​decrease AD by $200 billion if MPC = 0.9. 
D) ​decrease AD by $40 billion if MPC = 0.4. 
A) ​increase AD by $500 billion if MPC = 0.8. 
B) ​decrease AD by $300 billion if MPC = 2/3. 
C) ​decrease AD by $200 billion if MPC = 0.9. 
D) ​decrease AD by $40 billion if MPC = 0.4.

Question 6

Which of the following statements is not true with regard to automatic stabilizers?

Accepted Answer

A) ​The most important automatic stabilizer is the tax system. 
B) ​They act as shock absorbers to the economy. 
C) ​They require legislative action. 
D) ​Automatic stabilizers like government transfer payments change as business cycles conditions change. 
A) ​The most important automatic stabilizer is the tax system. 
B) ​They act as shock absorbers to the economy. 
C) ​They require legislative action. 
D) ​Automatic stabilizers like government transfer payments change as business cycles conditions change.

Question 7

Which of the following propositions would a proponent of supply-side economics be most likely to stress?

Accepted Answer

A) ​Higher marginal tax rates will lead to a reduction in the budget deficit and lower interest rates, because they expand government revenues. 
B) ​Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output, because they encourage investors to undertake low-productivity projects with substantial tax-shelter benefits. 
C) ​Income redistribution payments will exert little impact on real aggregate supply, since they do not consume resources directly. 
D) ​A tax reduction will increase the disposable income of households.Thus the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus. 
A) ​Higher marginal tax rates will lead to a reduction in the budget deficit and lower interest rates, because they expand government revenues. 
B) ​Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output, because they encourage investors to undertake low-productivity projects with substantial tax-shelter benefits. 
C) ​Income redistribution payments will exert little impact on real aggregate supply, since they do not consume resources directly. 
D) ​A tax reduction will increase the disposable income of households.Thus the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus.

Question 8

Automatic stabilizers lead to:

Accepted Answer

A) ​a decrease in taxes collected by the government during an economic expansion. 
B) ​a decrease in unemployment compensation during a recession. 
C) ​Congressional action on changing the tax codes. 
D) ​none of the above 
A) ​a decrease in taxes collected by the government during an economic expansion. 
B) ​a decrease in unemployment compensation during a recession. 
C) ​Congressional action on changing the tax codes. 
D) ​none of the above

Question 9

Supply-side advocates believe that when taxes and regulations are too burdensome, people will:

Accepted Answer

A) ​save less. 
B) ​work less. 
C) ​provide less investment capital. 
D) ​do all of the above. 
A) ​save less. 
B) ​work less. 
C) ​provide less investment capital. 
D) ​do all of the above.

Question 10

The greater the MPC:

Accepted Answer

A) ​the greater the fraction of an increase in AD due to an increase in government purchases that is consumption. 
B) ​the smaller the fraction of an increase in AD due to an increase in government purchases that is consumption. 
C) ​the greater the change in government purchases required to achieve a given change in AD. 
D) ​none of the above 
A) ​the greater the fraction of an increase in AD due to an increase in government purchases that is consumption. 
B) ​the smaller the fraction of an increase in AD due to an increase in government purchases that is consumption. 
C) ​the greater the change in government purchases required to achieve a given change in AD. 
D) ​none of the above

Question 11

Economists agree that the multiplier effect on real output is close to zero when:

Accepted Answer

A) ​inflation is very low. 
B) ​the economy is at or near full employment. 
C) ​the national debt is relatively small. 
D) ​"shovel-ready" projects exist. 
A) ​inflation is very low. 
B) ​the economy is at or near full employment. 
C) ​the national debt is relatively small. 
D) ​"shovel-ready" projects exist.

Question 12

Based on the situation depicted in the graph below, which of the following would be an appropriate fiscal policy response?

Accepted Answer

A) ​increase taxes 
B) ​decrease taxes 
C) ​decrease government purchases 
D) ​both (a) and (c). 
A) ​increase taxes 
B) ​decrease taxes 
C) ​decrease government purchases 
D) ​both (a) and (c).

Question 13

Other things equal, contractionary fiscal policy will lead to:

Accepted Answer

A) ​an increased budget deficit (assuming an initial budget deficit). 
B) ​a reduced budget surplus (assuming an initial budget surplus). 
C) ​an expanded budget surplus (assuming an initial budget surplus). 
D) ​increased government purchases. 
A) ​an increased budget deficit (assuming an initial budget deficit). 
B) ​a reduced budget surplus (assuming an initial budget surplus). 
C) ​an expanded budget surplus (assuming an initial budget surplus). 
D) ​increased government purchases.

Question 14

Why is the tax multiplier smaller than the government spending multiplier?

Accepted Answer

The tax multiplier is smaller than the g

Question 15

Contractionary fiscal policy may have a larger effect in reducing aggregate demand in an open economy than a closed economy.

Accepted Answer

A) True 
 B)False

Question 16

A $100 billion decrease in government purchases would:

Accepted Answer

A) ​increase AD by $500 billion if MPC = 0.8. 
B) ​decrease AD by $300 billion if MPC = 2/3. 
C) ​increase AD by $200 billion if MPC = 0.5. 
D) ​decrease AD by $40 billion if MPC = 0.4. 
A) ​increase AD by $500 billion if MPC = 0.8. 
B) ​decrease AD by $300 billion if MPC = 2/3. 
C) ​increase AD by $200 billion if MPC = 0.5. 
D) ​decrease AD by $40 billion if MPC = 0.4.

Question 17

If government policy makers were worried about the inflationary potential of the economy, which of the following would be a correct fiscal policy change?

Accepted Answer

A) ​Decrease consumption taxes. 
B) ​Decrease government purchases of goods and services. 
C) ​Increase government purchases. 
D) ​None of the above. 
A) ​Decrease consumption taxes. 
B) ​Decrease government purchases of goods and services. 
C) ​Increase government purchases. 
D) ​None of the above.

Question 18

The federal government funds deficit spending by:

Accepted Answer

A) ​issuing bonds. 
B) ​redeeming bonds. 
C) ​increasing taxes. 
D) ​providing and selling government services. 
A) ​issuing bonds. 
B) ​redeeming bonds. 
C) ​increasing taxes. 
D) ​providing and selling government services.

Question 19

Supply-side economics stress that:

Accepted Answer

A) ​aggregate demand is the major determinant of real output and aggregate employment. 
B) ​tax rates are not a major determinant of real output and aggregate employment. 
C) ​an increase in government expenditures financed by higher tax rates will cause RGDP to rise. 
D) ​marginal tax rate changes can exert a significant impact on RGDP, even in the long run. 
A) ​aggregate demand is the major determinant of real output and aggregate employment. 
B) ​tax rates are not a major determinant of real output and aggregate employment. 
C) ​an increase in government expenditures financed by higher tax rates will cause RGDP to rise. 
D) ​marginal tax rate changes can exert a significant impact on RGDP, even in the long run.

Question 20

The effect of a tax multiplier on aggregate demand is larger than that of the government spending multiplier.

Accepted Answer

A) True 
 B)False

Exam 16: The Markets for Labor, Capital, and Land

If MPC = 0.8, a $200 billion increase in government purchases would have what size effect on the "first round" of induced added consumption?

The larger the marginal propensity to consume, the larger the multiplier effect.

A larger crowding-out effect:

According to the supply-side view of fiscal policy, if the impact on tax revenues is the same, does it make any difference whether the government cuts taxes in a way that reduces marginal tax rates or in a way that does not reduce marginal tax rates?

A $100 billion increase in government purchases would:

Which of the following statements is not true with regard to automatic stabilizers?

Which of the following propositions would a proponent of supply-side economics be most likely to stress?

Automatic stabilizers lead to:

Supply-side advocates believe that when taxes and regulations are too burdensome, people will:

The greater the MPC:

Economists agree that the multiplier effect on real output is close to zero when:

Based on the situation depicted in the graph below, which of the following would be an appropriate fiscal policy response?

Other things equal, contractionary fiscal policy will lead to:

Why is the tax multiplier smaller than the government spending multiplier?

Contractionary fiscal policy may have a larger effect in reducing aggregate demand in an open economy than a closed economy.

A $100 billion decrease in government purchases would:

If government policy makers were worried about the inflationary potential of the economy, which of the following would be a correct fiscal policy change?

The federal government funds deficit spending by:

Supply-side economics stress that:

The effect of a tax multiplier on aggregate demand is larger than that of the government spending multiplier.

The Role and Method of Economics

Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Market in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

Income, Poverty and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

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