Question 1

If the economy experiences an unplanned inventory accumulation at the full employment level of GDP, then the economy is in a(n)

Accepted Answer

A)  inflationary gap. 
B)  hyperinflation. 
C)  recessionary gap. 
D)  full employment gap. 
A)  inflationary gap. 
B)  hyperinflation. 
C)  recessionary gap. 
D)  full employment gap.

Question 2

When we add a personal income tax to the macroeconomic model, the

Accepted Answer

A)  multiplier becomes larger. 
B)  multiplier becomes smaller. 
C)  expenditures schedule shifts upward. 
D)  expenditures schedule becomes steeper. 
A)  multiplier becomes larger. 
B)  multiplier becomes smaller. 
C)  expenditures schedule shifts upward. 
D)  expenditures schedule becomes steeper.

Question 3

When the government taxes and spends, each activity affects GDP in the same proportion.

Accepted Answer

A) True 
 B)False

Question 4

Supply-side tax cuts tend to benefit the rich because tax cuts

Accepted Answer

A)  on income tend to benefit high income earners more than low income earners. 
B)  on savings benefit high income earners who do most of the personal saving. 
C)  for capital formation tend to benefit those with the means to accumulate capital. 
D)  on capital gains tend to benefit those with larger financial assets. 
E)  All of the above are correct. 
A)  on income tend to benefit high income earners more than low income earners. 
B)  on savings benefit high income earners who do most of the personal saving. 
C)  for capital formation tend to benefit those with the means to accumulate capital. 
D)  on capital gains tend to benefit those with larger financial assets. 
E)  All of the above are correct.

Question 5

An active stabilization policy designed to limit the size of government would

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 6

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 7

Which of the following observations is true?

Accepted Answer

A)  Increase in taxes shifts the consumption schedule upward. 
B)  Tax reductions increase equilibrium GDP. 
C)  Taxes reduce total spending directly. 
D)  Taxes do not have a multiplier effect on equilibrium GDP. 
A)  Increase in taxes shifts the consumption schedule upward. 
B)  Tax reductions increase equilibrium GDP. 
C)  Taxes reduce total spending directly. 
D)  Taxes do not have a multiplier effect on equilibrium GDP.

Question 8

Figure 11-1
  
-In Figure 11-1, the economy is experiencing a(n)

Accepted Answer

A)  inflationary gap equal to EF. 
B)  inflationary gap equal to ET. 
C)  recessionary gap equal to ET. 
D)  recessionary gap equal to FT. 
A)  inflationary gap equal to EF. 
B)  inflationary gap equal to ET. 
C)  recessionary gap equal to ET. 
D)  recessionary gap equal to FT.

Question 9

Which of the following observations is true?

Accepted Answer

A)  Tax changes have no impact on the consumption schedule. 
B)  Tax reduction shifts the consumption schedule upward. 
C)  Changes in taxes have a multiplier effect on equilibrium GDP on the supply side. 
D)  Tax increases increase equilibrium GDP. 
A)  Tax changes have no impact on the consumption schedule. 
B)  Tax reduction shifts the consumption schedule upward. 
C)  Changes in taxes have a multiplier effect on equilibrium GDP on the supply side. 
D)  Tax increases increase equilibrium GDP.

Question 10

Figure 11-1
  
-In Figure 11-1, to reach the level of potential GDP, the administration of President Obama would most likely advocate

Accepted Answer

A)  increasing Social Security payments. 
B)  decreasing defense spending. 
C)  decreasing personal income taxes. 
D)  All of the above are correct. 
A)  increasing Social Security payments. 
B)  decreasing defense spending. 
C)  decreasing personal income taxes. 
D)  All of the above are correct.

Question 11

The government's fiscal policy is its plan to influence aggregate demand by changing

Accepted Answer

A)  the money supply. 
B)  minimum wage levels. 
C)  sales taxes. 
D)  taxation and spending. 
A)  the money supply. 
B)  minimum wage levels. 
C)  sales taxes. 
D)  taxation and spending.

Question 12

The oversimplified formula for the multiplier yields a number that is too large due to the exclusion of

Accepted Answer

A)  variable imports. 
B)  changes in the price-level. 
C)  income taxes. 
D)  All of the above. 
A)  variable imports. 
B)  changes in the price-level. 
C)  income taxes. 
D)  All of the above.

Question 13

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 14

President Clinton, at the beginning of his administration, increased personal income taxes on individuals with relatively high incomes.How will this change the consumption schedule?

Accepted Answer

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

Question 15

In 20091, President Obama and Congress stimulated aggregate demand by

Accepted Answer

A)  increasing taxes and government spending. 
B)  decreasing taxes and government spending. 
C)  increasing taxes and decreasing government spending. 
D)  decreasing taxes and increasing government spending. 
A)  increasing taxes and government spending. 
B)  decreasing taxes and government spending. 
C)  increasing taxes and decreasing government spending. 
D)  decreasing taxes and increasing government spending.

Question 16

During the 2009-2010 debate on the stimulus package, democrats argued primarily for increased government spending.What effect would this have on the value of the multiplier?

Accepted Answer

A)  It would decrease the value of the multiplier. 
B)  It would have no effect on the multiplier. 
C)  It would increase the value of the multiplier. 
D)  The effect is uncertain. 
A)  It would decrease the value of the multiplier. 
B)  It would have no effect on the multiplier. 
C)  It would increase the value of the multiplier. 
D)  The effect is uncertain.

Question 17

The main idea behind supply-side tax cuts is that

Accepted Answer

A)  tax cuts increase spending, which increases aggregate supply. 
B)  some tax cuts can increase aggregate supply. 
C)  people like lower taxes and will spend more if they get them. 
D)  it is easier to shift aggregate supply than aggregate demand. 
A)  tax cuts increase spending, which increases aggregate supply. 
B)  some tax cuts can increase aggregate supply. 
C)  people like lower taxes and will spend more if they get them. 
D)  it is easier to shift aggregate supply than aggregate demand.

Question 18

According to supply siders, tax cuts should increase aggregate supply.

Accepted Answer

A) True 
 B)False

Question 19

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 consumption in this model?

Accepted Answer

A)  2,950 
B)  2,750 
C)  2,550 
D)  2,350 
E)  2,150 
A)  2,950 
B)  2,750 
C)  2,550 
D)  2,350 
E)  2,150

Question 20

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.

Exam 28: Managing Aggregate Demand: Fiscal Policy

If the economy experiences an unplanned inventory accumulation at the full employment level of GDP, then the economy is in a(n)

When we add a personal income tax to the macroeconomic model, the

When the government taxes and spends, each activity affects GDP in the same proportion.

Supply-side tax cuts tend to benefit the rich because tax cuts

An active stabilization policy designed to limit the size of government would

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

Which of the following observations is true?

Figure 11-1 -In Figure 11-1, the economy is experiencing a(n)

Which of the following observations is true?

Figure 11-1 -In Figure 11-1, to reach the level of potential GDP, the administration of President Obama would most likely advocate

The government's fiscal policy is its plan to influence aggregate demand by changing

The oversimplified formula for the multiplier yields a number that is too large due to the exclusion of

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

President Clinton, at the beginning of his administration, increased personal income taxes on individuals with relatively high incomes.How will this change the consumption schedule?

In 20091, President Obama and Congress stimulated aggregate demand by

During the 2009-2010 debate on the stimulus package, democrats argued primarily for increased government spending.What effect would this have on the value of the multiplier?

The main idea behind supply-side tax cuts is that

According to supply siders, tax cuts should increase aggregate supply.

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

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

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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