Question 1

Transfer payments represent income that is not earned but received by individuals.

Accepted Answer

A) True 
 B)False

Question 2

If the government decides to change the level of government spending, what happens to the value of the multiplier?

Accepted Answer

A)  It becomes larger. 
B)  It becomes smaller. 
C)  It does not change. 
D)  It is impossible to predict. 
A)  It becomes larger. 
B)  It becomes smaller. 
C)  It does not change. 
D)  It is impossible to predict.

Question 3

How does a tax cut 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 4

The fiscal policy planner's job is made easier because full-employment GDP can be accurately measured.

Accepted Answer

A) True 
 B)False

Question 5

The Japanese economy is stuck in a recessionary gap.The proper fiscal policy could include a(n)

Accepted Answer

A)  decrease in taxes. 
B)  increase in government purchases. 
C)  increase in transfer payments. 
D)  All of the above are correct. 
A)  decrease in taxes. 
B)  increase in government purchases. 
C)  increase in transfer payments. 
D)  All of the above are correct.

Question 6

When government spending is added to the basic macroeconomic model, the multiplier for G would

Accepted Answer

A)  be higher than the multiplier for autonomous spending. 
B)  be lower than the multiplier for autonomous spending. 
C)  be equal to the multiplier for autonomous spending. 
D)  have no relationship to the autonomous spending multiplier. 
A)  be higher than the multiplier for autonomous spending. 
B)  be lower than the multiplier for autonomous spending. 
C)  be equal to the multiplier for autonomous spending. 
D)  have no relationship to the autonomous spending multiplier.

Question 7

If all fixed taxes in the United States were removed and only variable taxes remained, what would be the effect on the expenditures schedule?

Accepted Answer

A)  The expenditure schedule will shift upward. 
B)  The expenditure schedule will shift downward. 
C)  The expenditure schedule will become flatter. 
D)  The expenditure schedule will become steeper. 
A)  The expenditure schedule will shift upward. 
B)  The expenditure schedule will shift downward. 
C)  The expenditure schedule will become flatter. 
D)  The expenditure schedule will become steeper.

Question 8

In an effort to balance the federal budget, an increase in Social Security taxes is passed.What is the most likely effect of this on equilibrium GDP?

Accepted Answer

A)  GDP will increase. 
B)  GDP will decrease. 
C)  GDP will not change but prices will rise. 
D)  GDP will not change but employment will increase. 
A)  GDP will increase. 
B)  GDP will decrease. 
C)  GDP will not change but prices will rise. 
D)  GDP will not change but employment will increase.

Question 9

Ronald Reagan's presidency could be characterized as a period of

Accepted Answer

A)  passive monetary policy. 
B)  passive fiscal policy. 
C)  active fiscal policy. 
D)  active regulatory policy. 
A)  passive monetary policy. 
B)  passive fiscal policy. 
C)  active fiscal policy. 
D)  active regulatory policy.

Question 10

An increase in Social Security payments to retired persons has what effect on equilibrium income?

Accepted Answer

A)  GDP will fall. 
B)  GDP will rise. 
C)  GDP will remain the same. 
D)  GDP will fall by less than the increase in payments. 
A)  GDP will fall. 
B)  GDP will rise. 
C)  GDP will remain the same. 
D)  GDP will fall by less than the increase in payments.

Question 11

Which of the following statements would appeal to someone who favors an expanded public sector as the basis of expansionary fiscal policy?

Accepted Answer

A)  "The government isn't the solution; it's the problem." 
B)  "The government that governs least governs best." 
C)  "The American people want national defense; they want laws to be enforced; they want federal support for education and environmental protection, and they want transfer payments for the elderly and unemployed." 
D)  "If you ever got anything good out of the government you can be sure that some rich so-and-so got more." 
A)  "The government isn't the solution; it's the problem." 
B)  "The government that governs least governs best." 
C)  "The American people want national defense; they want laws to be enforced; they want federal support for education and environmental protection, and they want transfer payments for the elderly and unemployed." 
D)  "If you ever got anything good out of the government you can be sure that some rich so-and-so got more."

Question 12

A "conservative" would most likely argue in favor of

Accepted Answer

A)  tax increases when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
B)  tax cuts when fiscal restraint is necessary, and spending cuts when fiscal stimulus is necessary. 
C)  tax cuts when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
D)  spending increases when fiscal expansion is necessary, and tax increases when fiscal stimulus is necessary. 
A)  tax increases when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
B)  tax cuts when fiscal restraint is necessary, and spending cuts when fiscal stimulus is necessary. 
C)  tax cuts when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
D)  spending increases when fiscal expansion is necessary, and tax increases when fiscal stimulus is necessary.

Question 13

A Keynesian economist would expect a supply-side tax cut to shift

Accepted Answer

A)  only the aggregate supply curve outward. 
B)  only the aggregate demand curve outward. 
C)  both the aggregate demand and aggregate supply curves outward. 
D)  the aggregate supply curve outward and the aggregate demand curve inward. 
A)  only the aggregate supply curve outward. 
B)  only the aggregate demand curve outward. 
C)  both the aggregate demand and aggregate supply curves outward. 
D)  the aggregate supply curve outward and the aggregate demand curve inward.

Question 14

A change in a fixed tax will cause the consumption schedule to

Accepted Answer

A)  become steeper. 
B)  become flatter. 
C)  shift in a parallel manner. 
D)  remain fixed as the economy moves along the schedule. 
A)  become steeper. 
B)  become flatter. 
C)  shift in a parallel manner. 
D)  remain fixed as the economy moves along the schedule.

Question 15

If wealthy U.S.consumers save most of their tax cut, this means that, compared to government spending changes,

Accepted Answer

A)  tax changes would have a higher multiplier effect. 
B)  tax changes would have a weaker multiplier effect. 
C)  government spending would have a weaker multiplier effect. 
D)  U.S.consumers would spend all of their tax cut. 
A)  tax changes would have a higher multiplier effect. 
B)  tax changes would have a weaker multiplier effect. 
C)  government spending would have a weaker multiplier effect. 
D)  U.S.consumers would spend all of their tax cut.

Question 16

The oversimplified formula for the multiplier is misleading because it ignores the effects of

Accepted Answer

A)  price-level changes. 
B)  the foreign sector. 
C)  variable taxes. 
D)  All of the above are correct. 
A)  price-level changes. 
B)  the foreign sector. 
C)  variable taxes. 
D)  All of the above are correct.

Question 17

The multiplier is increased when income taxes are included.

Accepted Answer

A) True 
 B)False

Question 18

The president wishes to increase spending for education by $4 billion but also maintain a balanced budget.Therefore, taxes will also be increased by $4 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 19

Expansionary fiscal policy can cause a rise in real GDP in combination with

Accepted Answer

A)  an increase in the price level. 
B)  a decrease in the price level. 
C)  no change in the price level. 
D)  a decrease in the price level if the aggregate supply curve is upward sloping. 
A)  an increase in the price level. 
B)  a decrease in the price level. 
C)  no change in the price level. 
D)  a decrease in the price level if the aggregate supply curve is upward sloping.

Question 20

Reducing transfer payments is an appropriate way to counteract a recessionary gap.

Accepted Answer

A) True 
 B)False

Exam 28: Managing Aggregate Demand: Fiscal Policy

Transfer payments represent income that is not earned but received by individuals.

If the government decides to change the level of government spending, what happens to the value of the multiplier?

How does a tax cut affect the expenditure schedule?

The fiscal policy planner's job is made easier because full-employment GDP can be accurately measured.

The Japanese economy is stuck in a recessionary gap.The proper fiscal policy could include a(n)

When government spending is added to the basic macroeconomic model, the multiplier for G would

If all fixed taxes in the United States were removed and only variable taxes remained, what would be the effect on the expenditures schedule?

In an effort to balance the federal budget, an increase in Social Security taxes is passed.What is the most likely effect of this on equilibrium GDP?

Ronald Reagan's presidency could be characterized as a period of

An increase in Social Security payments to retired persons has what effect on equilibrium income?

Which of the following statements would appeal to someone who favors an expanded public sector as the basis of expansionary fiscal policy?

A "conservative" would most likely argue in favor of

A Keynesian economist would expect a supply-side tax cut to shift

A change in a fixed tax will cause the consumption schedule to

If wealthy U.S.consumers save most of their tax cut, this means that, compared to government spending changes,

The oversimplified formula for the multiplier is misleading because it ignores the effects of

The multiplier is increased when income taxes are included.

The president wishes to increase spending for education by $4 billion but also maintain a balanced budget.Therefore, taxes will also be increased by $4 billion.What will happen to GDP?

Expansionary fiscal policy can cause a rise in real GDP in combination with

Reducing transfer payments is an appropriate way to counteract a recessionary gap.

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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