Question 1

If income tax rates are increased in an attempt to balance the federal budget, we should expect to see

Accepted Answer

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

Question 2

Do policy makers know the level of unemployment that is associated with "full employment"?

Accepted Answer

A)  Yes, economists have the precise level of unemployment that is full employment. 
B)  Yes, although there is a small range of uncertainty in this measure. 
C)  No, economists have no idea what this level of unemployment is. 
D)  No, this number is not known with complete accuracy. 
A)  Yes, economists have the precise level of unemployment that is full employment. 
B)  Yes, although there is a small range of uncertainty in this measure. 
C)  No, economists have no idea what this level of unemployment is. 
D)  No, this number is not known with complete accuracy.

Question 3

You are a member of Congress in 2007-2009 when the economy is in a recessionary gap.If your goal is to achieve full employment, you should vote for

Accepted Answer

A)  decreased government purchases, increased taxes, and a cut in transfer payments. 
B)  a balanced federal budget. 
C)  increased government purchases, decreased taxes, and an increase in transfer payments. 
D)  increased government purchases and transfer payments, and an equal increase in taxes. 
A)  decreased government purchases, increased taxes, and a cut in transfer payments. 
B)  a balanced federal budget. 
C)  increased government purchases, decreased taxes, and an increase in transfer payments. 
D)  increased government purchases and transfer payments, and an equal increase in taxes.

Question 4

The reason that the multiplier is smaller if there are variable taxes is that

Accepted Answer

A)  taxes add to government spending, which increases income. 
B)  people get angry about taxes and decide to work less. 
C)  tax increases shift the expenditure line upward. 
D)  part of an increase in income is taken away in taxes. 
A)  taxes add to government spending, which increases income. 
B)  people get angry about taxes and decide to work less. 
C)  tax increases shift the expenditure line upward. 
D)  part of an increase in income is taken away in taxes.

Question 5

Why is the personal income tax considered to be one of the main features of our modern economy that helps ensure against a repeat performance of the Great Depression?

Accepted Answer

Income tax is considered an automatic st

Question 6

If the federal government increases the amount of Social Security benefits for retired persons, then the

Accepted Answer

A)  consumption schedule will shift upward. 
B)  aggregate demand curve will shift outward. 
C)  effect on equilibrium GDP will be the same as a cut in taxes. 
D)  All of the above are correct. 
A)  consumption schedule will shift upward. 
B)  aggregate demand curve will shift outward. 
C)  effect on equilibrium GDP will be the same as a cut in taxes. 
D)  All of the above are correct.

Question 7

Capital gains tax cuts inevitably benefit

Accepted Answer

A)  low-income workers. 
B)  retired persons. 
C)  workers in large cities. 
D)  high-income stock owners. 
A)  low-income workers. 
B)  retired persons. 
C)  workers in large cities. 
D)  high-income stock owners.

Question 8

Taxes reduce total spending

Accepted Answer

A)  directly by increasing government purchases by an equal amount. 
B)  directly by substituting investment spending. 
C)  indirectly by reducing government spending. 
D)  indirectly by reducing disposable income. 
A)  directly by increasing government purchases by an equal amount. 
B)  directly by substituting investment spending. 
C)  indirectly by reducing government spending. 
D)  indirectly by reducing disposable income.

Question 9

A tax reduction shifts the consumption schedule downward.

Accepted Answer

A) True 
 B)False

Question 10

If the Bush tax cuts were allowed to expire in 2010, the maximum personal income tax rate in the United States would have moved above 50 percent.

Accepted Answer

A) True 
 B)False

Question 11

Figure 11-2
  
-Which graph in Figure 11-2 best reflects a Keynesian view of the impact of a $500-per-person tax cut?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 12

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 13

One objection to supply-side tax cuts is that demand-side changes

Accepted Answer

A)  are smaller than supply-side changes. 
B)  and supply-side changes are about equal. 
C)  are more unpredictable than supply-side changes. 
D)  are larger than supply-side changes. 
A)  are smaller than supply-side changes. 
B)  and supply-side changes are about equal. 
C)  are more unpredictable than supply-side changes. 
D)  are larger than supply-side changes.

Question 14

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 15

Figure 11-3
  
-In Figure 11-3, which line represents the change in the consumption schedule caused by a cut in fixed taxes?

Accepted Answer

A)  C₁ in graph (a) 
B)  C₂ in graph (a) 
C)  C₁ in graph (b) 
D)  C₂ in graph (b) 
A)  C₁ in graph (a) 
B)  C₂ in graph (a) 
C)  C₁ in graph (b) 
D)  C₂ in graph (b)

Question 16

Compared to an economy's self-correcting mechanism, active contractionary fiscal policy will

Accepted Answer

A)  work more slowly and calmly. 
B)  work more quickly. 
C)  have less deflationary effects. 
D)  have a smaller effect on real GDP. 
A)  work more slowly and calmly. 
B)  work more quickly. 
C)  have less deflationary effects. 
D)  have a smaller effect on real GDP.

Question 17

Transfer payments exactly replace the income lost because of taxes.

Accepted Answer

A) True 
 B)False

Question 18

Policy makers and citizens who want to expand the size of the government sector would favor stabilization policies that

Accepted Answer

A)  raise G to eliminate a recessionary gap and lower taxes to eliminate an inflationary gap. 
B)  raise G to eliminate a recessionary gap and raise taxes to eliminate an inflationary gap. 
C)  reduce taxes to eliminate a recessionary gap and raise G to eliminate an inflationary gap. 
D)  reduce taxes to eliminate a recessionary gap and reduce G to eliminate an inflationary gap. 
A)  raise G to eliminate a recessionary gap and lower taxes to eliminate an inflationary gap. 
B)  raise G to eliminate a recessionary gap and raise taxes to eliminate an inflationary gap. 
C)  reduce taxes to eliminate a recessionary gap and raise G to eliminate an inflationary gap. 
D)  reduce taxes to eliminate a recessionary gap and reduce G to eliminate an inflationary gap.

Question 19

Federal budget deficits are often increased by supply-side policies because of their reliance on

Accepted Answer

A)  income tax cuts. 
B)  income tax increases. 
C)  increased government spending. 
D)  decreased government spending. 
A)  income tax cuts. 
B)  income tax increases. 
C)  increased government spending. 
D)  decreased government spending.

Question 20

One of the practical issues in the choice of government spending or taxes to change aggregate demand is how large a

Accepted Answer

A)  change in demand we want. 
B)  trade deficit we want. 
C)  budget deficit we want. 
D)  government sector we want. 
A)  change in demand we want. 
B)  trade deficit we want. 
C)  budget deficit we want. 
D)  government sector we want.

Exam 28: Managing Aggregate Demand: Fiscal Policy

If income tax rates are increased in an attempt to balance the federal budget, we should expect to see

Do policy makers know the level of unemployment that is associated with "full employment"?

You are a member of Congress in 2007-2009 when the economy is in a recessionary gap.If your goal is to achieve full employment, you should vote for

The reason that the multiplier is smaller if there are variable taxes is that

Why is the personal income tax considered to be one of the main features of our modern economy that helps ensure against a repeat performance of the Great Depression?

If the federal government increases the amount of Social Security benefits for retired persons, then the

Capital gains tax cuts inevitably benefit

Taxes reduce total spending

A tax reduction shifts the consumption schedule downward.

If the Bush tax cuts were allowed to expire in 2010, the maximum personal income tax rate in the United States would have moved above 50 percent.

Figure 11-2 -Which graph in Figure 11-2 best reflects a Keynesian view of the impact of a $500-per-person tax cut?

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

One objection to supply-side tax cuts is that demand-side changes

To eliminate an inflationary gap, the aggregate demand curve should

Figure 11-3 -In Figure 11-3, which line represents the change in the consumption schedule caused by a cut in fixed taxes?

Compared to an economy's self-correcting mechanism, active contractionary fiscal policy will

Transfer payments exactly replace the income lost because of taxes.

Policy makers and citizens who want to expand the size of the government sector would favor stabilization policies that

Federal budget deficits are often increased by supply-side policies because of their reliance on

One of the practical issues in the choice of government spending or taxes to change aggregate demand is how large a

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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