Question 1

Table 11-1
 $\begin{array}{l}
\mathrm{Y}=\mathrm{C}+\mathrm{I}+\mathrm{G} \
\mathrm{C}=500+8(\mathrm{Y}-\mathrm{T}) \
\mathrm{I}=300 \
\mathrm{G}=700 \
\mathrm{~T}=25 \mathrm{Y}
\end{array}$
-Refer to Table 11-1.What is the equilibrium level of income in this model?

Accepted Answer

A)  5,000 
B)  4,500 
C)  3,750 
D)  3,500 
E)  3,250 
A)  5,000 
B)  4,500 
C)  3,750 
D)  3,500 
E)  3,250 C

Question 2

As a general rule, when an income tax is added to the basic macroeconomic model, what happens to the consumption schedule?

Accepted Answer

A)  It will shift downward. 
B)  It will shift upward. 
C)  It will become flatter. 
D)  It will become steeper. 
A)  It will shift downward. 
B)  It will shift upward. 
C)  It will become flatter. 
D)  It will become steeper. C

Question 3

A proponent of supply-side economics would advocate

Accepted Answer

A)  reducing income taxes on saving. 
B)  reducing tax credits for research and development. 
C)  eliminating the depreciation allowance. 
D)  increasing the corporate income tax. 
A)  reducing income taxes on saving. 
B)  reducing tax credits for research and development. 
C)  eliminating the depreciation allowance. 
D)  increasing the corporate income tax. A

Question 4

Which of the following will shift the aggregate demand curve outward?

Accepted Answer

A)  tax cuts and government spending cuts 
B)  tax increases and government spending increases 
C)  tax cuts and government spending increases 
D)  tax increases and government spending increases. 
A)  tax cuts and government spending cuts 
B)  tax increases and government spending increases 
C)  tax cuts and government spending increases 
D)  tax increases and government spending increases.

Question 5

Table 11-1
 $\begin{array}{l}
\mathrm{Y}=\mathrm{C}+\mathrm{I}+\mathrm{G} \
\mathrm{C}=500+8(\mathrm{Y}-\mathrm{T}) \
\mathrm{I}=300 \
\mathrm{G}=700 \
\mathrm{~T}=25 \mathrm{Y}
\end{array}$
-Refer to Table 11-1.What is the level of tax revenues in this model?

Accepted Answer

A)  1,000 
B)  950 
C)  945.5 
D)  937.5 
E)  437.5 
A)  1,000 
B)  950 
C)  945.5 
D)  937.5 
E)  437.5

Question 6

The difference between a fixed tax and a variable tax is that

Accepted Answer

A)  fixed taxes can never be changed, but variable taxes can be changed. 
B)  a change in fixed taxes has no effect on aggregate demand, but a change in variable taxes has an impact. 
C)  a variable tax changes when GDP changes, but a fixed tax does not change with GDP. 
D)  a variable tax can be changed easily, whereas changing fixed taxes requires a constitutional amendment. 
A)  fixed taxes can never be changed, but variable taxes can be changed. 
B)  a change in fixed taxes has no effect on aggregate demand, but a change in variable taxes has an impact. 
C)  a variable tax changes when GDP changes, but a fixed tax does not change with GDP. 
D)  a variable tax can be changed easily, whereas changing fixed taxes requires a constitutional amendment.

Question 7

During the 2009-2010 stimulus debate, Republicans argued that increases in government spending would be more effective than decreases in taxes.

Accepted Answer

A) True 
 B)False

Question 8

One of the objectives of supply-side policies is to

Accepted Answer

A)  focus attention on the trade-off between inflation and unemployment. 
B)  sharpen the trade-off between inflation and unemployment. 
C)  eliminate the trade-off between inflation and unemployment. 
D)  convince the public of the trade-off between inflation and unemployment. 
A)  focus attention on the trade-off between inflation and unemployment. 
B)  sharpen the trade-off between inflation and unemployment. 
C)  eliminate the trade-off between inflation and unemployment. 
D)  convince the public of the trade-off between inflation and unemployment.

Question 9

If increases in government spending lead to inflation, the value of the multiplier is reduced.

Accepted Answer

A) True 
 B)False

Question 10

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 11

In 2000, many economists believed that the most serious macroeconomic problem confronting the U.S.economy was an inflationary gap.Which policies would be effective in dealing with this problem?

Accepted Answer

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

Question 12

Table 11-1
 $\begin{array}{l}
\mathrm{Y}=\mathrm{C}+\mathrm{I}+\mathrm{G} \
\mathrm{C}=500+8(\mathrm{Y}-\mathrm{T}) \
\mathrm{I}=300 \
\mathrm{G}=700 \
\mathrm{~T}=25 \mathrm{Y}
\end{array}$
-Refer to Table 11-1.What is the level of saving in this model?

Accepted Answer

A)  92.5 
B)  72.5 
C)  62.5 
D)  52.5 
E)  42.5 
A)  92.5 
B)  72.5 
C)  62.5 
D)  52.5 
E)  42.5

Question 13

In order to maintain a balanced budget, Congress has decided to cut taxes and government spending both by $25 billion.What will happen to GDP?

Accepted Answer

A)  It will increase. 
B)  It will remain the same. 
C)  It will decrease. 
D)  It's impossible to know without the multiplier. 
A)  It will increase. 
B)  It will remain the same. 
C)  It will decrease. 
D)  It's impossible to know without the multiplier.

Question 14

When you compare the effects of government spending on aggregate demand with the effects of taxes on aggregate demand, the effects of government spending are

Accepted Answer

A)  smaller. 
B)  larger. 
C)  the same. 
D)  impossible to predict. 
A)  smaller. 
B)  larger. 
C)  the same. 
D)  impossible to predict.

Question 15

If a "conservative" wanted to increase aggregate demand, which of the following would she tend to favor?

Accepted Answer

A)  An increase in government spending, because it has a larger multiplier than tax changes. 
B)  A decrease in transfer payments, because it keeps the public sector small. 
C)  An increase in transfer payments, because it has a larger multiplier than tax changes. 
D)  A decrease in taxes, because it makes the public sector smaller. 
A)  An increase in government spending, because it has a larger multiplier than tax changes. 
B)  A decrease in transfer payments, because it keeps the public sector small. 
C)  An increase in transfer payments, because it has a larger multiplier than tax changes. 
D)  A decrease in taxes, because it makes the public sector smaller.

Question 16

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 17

Changes in government spending

Accepted Answer

A)  are an indirect component of the expenditures schedule. 
B)  have a different multiplier effect than changes in business investment spending. 
C)  are a direct component of the expenditures schedule and have the same multiplier effect as changes in business investment spending. 
D)  do not have an effect on spending if they are matched by tax changes. 
A)  are an indirect component of the expenditures schedule. 
B)  have a different multiplier effect than changes in business investment spending. 
C)  are a direct component of the expenditures schedule and have the same multiplier effect as changes in business investment spending. 
D)  do not have an effect on spending if they are matched by tax changes.

Question 18

During the 2008 presidential campaign, candidate Barack Obama argued in favor of repealing the majority of the Bush tax cuts in order to increase government revenue.

Accepted Answer

A) True 
 B)False

Question 19

If the MPC in the U.S.was low, it would increase the value of the multiplier.

Accepted Answer

A) True 
 B)False

Question 20

Historically, the government has used fiscal policy to affect the economy through

Accepted Answer

A)  central planning. 
B)  indicative planning. 
C)  aggregate demand. 
D)  aggregate supply. 
A)  central planning. 
B)  indicative planning. 
C)  aggregate demand. 
D)  aggregate supply.

Exam 28: Managing Aggregate Demand: Fiscal Policy

Table 11-1 =++ =500+8(-) =300 =700 =25 -Refer to Table 11-1.What is the equilibrium level of income in this model?

As a general rule, when an income tax is added to the basic macroeconomic model, what happens to the consumption schedule?

A proponent of supply-side economics would advocate

Which of the following will shift the aggregate demand curve outward?

Table 11-1 =++ =500+8(-) =300 =700 =25 -Refer to Table 11-1.What is the level of tax revenues in this model?

The difference between a fixed tax and a variable tax is that

During the 2009-2010 stimulus debate, Republicans argued that increases in government spending would be more effective than decreases in taxes.

One of the objectives of supply-side policies is to

If increases in government spending lead to inflation, the value of the multiplier is reduced.

How does an increase in taxes affect the expenditure schedule?

In 2000, many economists believed that the most serious macroeconomic problem confronting the U.S.economy was an inflationary gap.Which policies would be effective in dealing with this problem?

Table 11-1 =++ =500+8(-) =300 =700 =25 -Refer to Table 11-1.What is the level of saving in this model?

In order to maintain a balanced budget, Congress has decided to cut taxes and government spending both by $25 billion.What will happen to GDP?

When you compare the effects of government spending on aggregate demand with the effects of taxes on aggregate demand, the effects of government spending are

If a "conservative" wanted to increase aggregate demand, which of the following would she tend to favor?

The primary goal of supply-side economics is to

Changes in government spending

During the 2008 presidential campaign, candidate Barack Obama argued in favor of repealing the majority of the Bush tax cuts in order to increase government revenue.

If the MPC in the U.S.was low, it would increase the value of the multiplier.

Historically, the government has used fiscal policy to affect the economy through

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

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

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