Question 1

How does an increase in taxes affect the expenditure schedule?

Accepted Answer

A)  It causes movement to the left along the schedule. 
B)  It causes the schedule to shift upward. 
C)  It causes movement to the right along the schedule. 
D)  It causes the schedule to shift downward. 
A)  It causes movement to the left along the schedule. 
B)  It causes the schedule to shift upward. 
C)  It causes movement to the right along the schedule. 
D)  It causes the schedule to shift downward.

Question 2

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 3

Why does the numerical value of the multiplier fall when an income tax is added to the income-expenditure model?

Accepted Answer

An income tax causes a portion of any in

Question 4

To eliminate an inflationary gap,the aggregate demand curve should

Accepted Answer

A)  shift outward. 
B)  become vertical. 
C)  become horizontal. 
D)  shift inward. 
A)  shift outward. 
B)  become vertical. 
C)  become horizontal. 
D)  shift inward.

Question 5

The personal income tax varies as GDP changes.

Accepted Answer

A) True 
 B)False

Question 6

If personal income tax rates are decreased in an attempt to stimulate spending,we should expect to see

Accepted Answer

A)  an increase in consumption and an increase in GDP. 
B)  an increase in consumption and a decrease in GDP. 
C)  a decrease in consumption and a decrease in GDP. 
D)  a decrease in consumption and an increase in GDP. 
A)  an increase in consumption and an increase in GDP. 
B)  an increase in consumption and a decrease in GDP. 
C)  a decrease in consumption and a decrease in GDP. 
D)  a decrease in consumption and an increase in GDP.

Question 7

Which of the following is a correct conclusion regarding the successful implementation of fiscal policy?

Accepted Answer

A)  Successful fiscal policy would be easy to achieve if Congress would stay out of the economy and permit natural market forces to restore full-employment equilibrium. 
B)  Successful fiscal policy is difficult to achieve because in the real world the investment,net exports,and consumption schedules are constantly shifting. 
C)  Successful fiscal policy is much easier to achieve today because econometric models make economic forecasting much easier. 
D)  As the income-expenditure model suggests,fiscal policy planners can move GDP to any level they please by changing tax and spending levels. 
A)  Successful fiscal policy would be easy to achieve if Congress would stay out of the economy and permit natural market forces to restore full-employment equilibrium. 
B)  Successful fiscal policy is difficult to achieve because in the real world the investment,net exports,and consumption schedules are constantly shifting. 
C)  Successful fiscal policy is much easier to achieve today because econometric models make economic forecasting much easier. 
D)  As the income-expenditure model suggests,fiscal policy planners can move GDP to any level they please by changing tax and spending levels.

Question 8

Government transfer payments act as automatic stabilizers because as labor income decreases,transfer payments

Accepted Answer

A)  decrease as well. 
B)  remain constant. 
C)  increase. 
D)  to the government increase. 
A)  decrease as well. 
B)  remain constant. 
C)  increase. 
D)  to the government increase.

Question 9

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 10

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 11

When government increases a fixed tax,consumption schedule

Accepted Answer

A)  shifts downward in a parallel manner. 
B)  shifts upward in a parallel manner. 
C)  becomes horizontal. 
D)  becomes vertical. 
A)  shifts downward in a parallel manner. 
B)  shifts upward in a parallel manner. 
C)  becomes horizontal. 
D)  becomes vertical.

Question 12

The primary goal of supply-side economics is to

Accepted Answer

A)  balance the federal budget. 
B)  reduce the balance of payments deficit. 
C)  reduce the money supply. 
D)  reduce inflation and increase growth at the same time. 
A)  balance the federal budget. 
B)  reduce the balance of payments deficit. 
C)  reduce the money supply. 
D)  reduce inflation and increase growth at the same time.

Question 13

When income taxes are included in the basic macroeconomic model,the value of the

Accepted Answer

A)  inflationary effect is increased. 
B)  multiplier is increased. 
C)  multiplier is decreased. 
D)  expenditure function is increased. 
A)  inflationary effect is increased. 
B)  multiplier is increased. 
C)  multiplier is decreased. 
D)  expenditure function is increased.

Question 14

Productivity increases,brought about by increased education and training,may shift the aggregate supply curve outward.

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

Supply-side tax cuts designed to increase investment spending are attractive in theory,but in practice

Accepted Answer

A)  the effect is the opposite of what theory suggests. 
B)  are less useful,because they take a long time to increase the capital stock. 
C)  they have no effect on the capital stock in the short or long run. 
D)  are powerful in the short run as capital stock rapidly increases,but the effect tapers off in the long run. 
A)  the effect is the opposite of what theory suggests. 
B)  are less useful,because they take a long time to increase the capital stock. 
C)  they have no effect on the capital stock in the short or long run. 
D)  are powerful in the short run as capital stock rapidly increases,but the effect tapers off in the long run.

Question 17

Assume that the government is considering different policies to increase total expenditures in order to reduce unemployment.Which of the following would achieve this objective?

Accepted Answer

A)  decreasing taxes 
B)  increasing government spending 
C)  increasing transfer payments 
D)  All of the above are correct. 
A)  decreasing taxes 
B)  increasing government spending 
C)  increasing transfer payments 
D)  All of the above are correct.

Question 18

Suppose the federal government is considering alternatives to increase the level of real GDP in order to reduce unemployment.It can only do one of the following.Which will have the smallest impact on the federal budget?

Accepted Answer

A)  decreasing transfer payments 
B)  increasing government spending 
C)  increasing transfer payments 
D)  decreasing government spending 
A)  decreasing transfer payments 
B)  increasing government spending 
C)  increasing transfer payments 
D)  decreasing government spending

Question 19

Assume that the federal government wishes to counteract inflation with a policy that has the smallest impact on the federal budget.Which of the following would you recommend?

Accepted Answer

A)  Increase transfer payments. 
B)  Increase government purchases. 
C)  Decrease government purchases. 
D)  Decrease transfer payments. 
E)  Increase personal income taxes. 
A)  Increase transfer payments. 
B)  Increase government purchases. 
C)  Decrease government purchases. 
D)  Decrease transfer payments. 
E)  Increase personal income taxes.

Question 20

Supply-side tax cuts also tend to reduce aggregate demand and promote recession.

Accepted Answer

A) True 
 B)False

How does an increase in taxes affect the expenditure schedule?

Why does a tax change affect aggregate demand?

Why does the numerical value of the multiplier fall when an income tax is added to the income-expenditure model?

To eliminate an inflationary gap,the aggregate demand curve should

The personal income tax varies as GDP changes.

If personal income tax rates are decreased in an attempt to stimulate spending,we should expect to see

Which of the following is a correct conclusion regarding the successful implementation of fiscal policy?

Government transfer payments act as automatic stabilizers because as labor income decreases,transfer payments

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

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)

When government increases a fixed tax,consumption schedule

The primary goal of supply-side economics is to

When income taxes are included in the basic macroeconomic model,the value of the

Productivity increases,brought about by increased education and training,may shift the aggregate supply curve outward.

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

Supply-side tax cuts designed to increase investment spending are attractive in theory,but in practice

Assume that the government is considering different policies to increase total expenditures in order to reduce unemployment.Which of the following would achieve this objective?

Suppose the federal government is considering alternatives to increase the level of real GDP in order to reduce unemployment.It can only do one of the following.Which will have the smallest impact on the federal budget?

Assume that the federal government wishes to counteract inflation with a policy that has the smallest impact on the federal budget.Which of the following would you recommend?

Supply-side tax cuts also tend to reduce aggregate demand and promote recession.

What Is Economics

The Economy Myth and Reality

The Fundamental Economic Problem Scarcity and Choice

Supply and Demand An Initial Look

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

The 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

Filters

Exam 11: Managing Aggregate Demand Fiscal Policy

How does an increase in taxes affect the expenditure schedule?

Why does a tax change affect aggregate demand?

Why does the numerical value of the multiplier fall when an income tax is added to the income-expenditure model?

To eliminate an inflationary gap,the aggregate demand curve should

The personal income tax varies as GDP changes.

If personal income tax rates are decreased in an attempt to stimulate spending,we should expect to see

Which of the following is a correct conclusion regarding the successful implementation of fiscal policy?

Government transfer payments act as automatic stabilizers because as labor income decreases,transfer payments

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

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)

When government increases a fixed tax,consumption schedule

The primary goal of supply-side economics is to

When income taxes are included in the basic macroeconomic model,the value of the

Productivity increases,brought about by increased education and training,may shift the aggregate supply curve outward.

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

Supply-side tax cuts designed to increase investment spending are attractive in theory,but in practice

Assume that the government is considering different policies to increase total expenditures in order to reduce unemployment.Which of the following would achieve this objective?

Suppose the federal government is considering alternatives to increase the level of real GDP in order to reduce unemployment.It can only do one of the following.Which will have the smallest impact on the federal budget?

Assume that the federal government wishes to counteract inflation with a policy that has the smallest impact on the federal budget.Which of the following would you recommend?

Supply-side tax cuts also tend to reduce aggregate demand and promote recession.

What Is Economics

The Economy Myth and Reality

The Fundamental Economic Problem Scarcity and Choice

Supply and Demand An Initial Look

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

The 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

Filters