Question 1

Most tax payments increase as GDP increases.

Accepted Answer

A) True 
 B)False

Question 2

As a result of the recent financial crisis, some analysts believed that the MPC in the U.S.declined.If this is true, the value of the multiplier is now

Accepted Answer

A)  smaller. 
B)  larger. 
C)  the same. 
D)  magnified to a larger amount. 
A)  smaller. 
B)  larger. 
C)  the same. 
D)  magnified to a larger amount.

Question 3

If the demand-side effects of supply-side tax cuts are greater than the supply-side effects, then we can expect the result to be a(n)

Accepted Answer

A)  decrease in output and prices. 
B)  decrease in output and an increase in prices. 
C)  increase in output and prices. 
D)  increase in output and a decrease in prices. 
A)  decrease in output and prices. 
B)  decrease in output and an increase in prices. 
C)  increase in output and prices. 
D)  increase in output and a decrease in prices.

Question 4

President Obama would generally advocate increased spending when the economy needs stimulus and increased taxation when the economy needs to be restricted.

Accepted Answer

A) True 
 B)False

Question 5

Explain why a change in income tax rates causes the consumption schedule to change slope.

Accepted Answer

An income tax rate determines the portio

Question 6

Congress is debating whether to raise taxes by $100 billion or decrease spending by $100 billion in order to eliminate a budget deficit.Which action will have the larger effect on equilibrium GDP?

Accepted Answer

A)  the increase in taxes 
B)  the decrease in spending 
C)  the effects will be equal 
D)  not possible to determine without knowing the multiplier 
A)  the increase in taxes 
B)  the decrease in spending 
C)  the effects will be equal 
D)  not possible to determine without knowing the multiplier

Question 7

Conservatives usually favor increasing government spending to increase aggregate demand.

Accepted Answer

A) True 
 B)False

Question 8

Income taxes and transfer payments help prevent extreme macroeconomic fluctuations.

Accepted Answer

A) True 
 B)False

Question 9

In 2009, the U.S.economy was experiencing a(n)

Accepted Answer

A)  recessionary gap. 
B)  inflationary gap. 
C)  balance of trade deficit. 
D)  hyperinflation. 
A)  recessionary gap. 
B)  inflationary gap. 
C)  balance of trade deficit. 
D)  hyperinflation.

Question 10

Suppose that the U.S.personal income tax was eliminated and replaced with a fixed tax that raised the exact same amount of revenue.The multiplier would be

Accepted Answer

A)  larger. 
B)  unchanged. 
C)  smaller. 
D)  incalculable. 
A)  larger. 
B)  unchanged. 
C)  smaller. 
D)  incalculable.

Question 11

When policy makers choose between tax policy and spending policy to affect the level of aggregate demand, they tend to choose on the basis of

Accepted Answer

A)  how large a public sector they want. 
B)  how much they want to change aggregate demand. 
C)  how much they want to change aggregate supply. 
D)  which has the larger multiplier. 
A)  how large a public sector they want. 
B)  how much they want to change aggregate demand. 
C)  how much they want to change aggregate supply. 
D)  which has the larger multiplier.

Question 12

An increase in income taxes was part of President George W.Bush's plan in 2001 and 2008 to increase aggregate demand.

Accepted Answer

A) True 
 B)False

Question 13

When taxes are decreased, disposable income increases even though GDP is unchanged.

Accepted Answer

A) True 
 B)False

Question 14

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 15

An increase in taxes will cause the consumption schedule to

Accepted Answer

A)  shift upward. 
B)  shift downward. 
C)  remain fixed as the economy moves upward along the schedule. 
D)  remain fixed as the economy moves downward along the schedule. 
A)  shift upward. 
B)  shift downward. 
C)  remain fixed as the economy moves upward along the schedule. 
D)  remain fixed as the economy moves downward along the schedule.

Question 16

At any given price level, equilibrium GDP on the expenditure side occurs when ____.

Accepted Answer

A)  Y = C + I + G - (X - IM) 
B)  Y = C + I - G 
C)  Y = C + I + G + (X - IM) 
D)  Y = C + X + G + (X - IM) 
A)  Y = C + I + G - (X - IM) 
B)  Y = C + I - G 
C)  Y = C + I + G + (X - IM) 
D)  Y = C + X + G + (X - IM)

Question 17

If personal income taxes are increased, disposable income and consumption

Accepted Answer

A)  increase. 
B)  stay the same. 
C)  decrease. 
D)  change in an unpredictable direction. 
A)  increase. 
B)  stay the same. 
C)  decrease. 
D)  change in an unpredictable direction.

Question 18

An automatic stabilizer is a feature of the economy that

Accepted Answer

A)  makes prices "sticky." 
B)  reduces its sensitivity to shocks. 
C)  maximizes its volatility. 
D)  automatically reduces recessionary trends. 
A)  makes prices "sticky." 
B)  reduces its sensitivity to shocks. 
C)  maximizes its volatility. 
D)  automatically reduces recessionary trends.

Question 19

Critics of supply-side economics argue that a major flaw is

Accepted Answer

A)  the small magnitude of supply-side effects. 
B)  the large size of demand-side effects. 
C)  increased income inequality. 
D)  All of the above. 
A)  the small magnitude of supply-side effects. 
B)  the large size of demand-side effects. 
C)  increased income inequality. 
D)  All of the above.

Question 20

To eliminate an inflationary gap, the expenditure schedule should

Accepted Answer

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

Exam 28: Managing Aggregate Demand: Fiscal Policy

Most tax payments increase as GDP increases.

As a result of the recent financial crisis, some analysts believed that the MPC in the U.S.declined.If this is true, the value of the multiplier is now

If the demand-side effects of supply-side tax cuts are greater than the supply-side effects, then we can expect the result to be a(n)

President Obama would generally advocate increased spending when the economy needs stimulus and increased taxation when the economy needs to be restricted.

Explain why a change in income tax rates causes the consumption schedule to change slope.

Congress is debating whether to raise taxes by $100 billion or decrease spending by $100 billion in order to eliminate a budget deficit.Which action will have the larger effect on equilibrium GDP?

Conservatives usually favor increasing government spending to increase aggregate demand.

Income taxes and transfer payments help prevent extreme macroeconomic fluctuations.

In 2009, the U.S.economy was experiencing a(n)

Suppose that the U.S.personal income tax was eliminated and replaced with a fixed tax that raised the exact same amount of revenue.The multiplier would be

When policy makers choose between tax policy and spending policy to affect the level of aggregate demand, they tend to choose on the basis of

An increase in income taxes was part of President George W.Bush's plan in 2001 and 2008 to increase aggregate demand.

When taxes are decreased, disposable income increases even though GDP is unchanged.

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?

An increase in taxes will cause the consumption schedule to

At any given price level, equilibrium GDP on the expenditure side occurs when ____.

If personal income taxes are increased, disposable income and consumption

An automatic stabilizer is a feature of the economy that

Critics of supply-side economics argue that a major flaw is

To eliminate an inflationary gap, the expenditure schedule should

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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