Question 1

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. D

Question 2

The Reagan tax cuts of the 1980s

Accepted Answer

A) had not impact on the budget deficit. 
B) decreased the budget deficit. 
C) increased the budget deficit. 
D) initially decreased the deficit but later increased it. 
A) had not impact on the budget deficit. 
B) decreased the budget deficit. 
C) increased the budget deficit. 
D) initially decreased the deficit but later increased it. C

Question 3

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. C

Question 4

Tax and spending policies affect aggregate demand only after some time elapses.Due to these time lags, fiscal policies end up getting based on

Accepted Answer

A) forecasts on the future state of the economy that are often inaccurate. 
B) forecasts on the present state of the economy that are often inaccurate. 
C) forecasts on the present state of the economy that are often accurate. 
D) all of these. 
A) forecasts on the future state of the economy that are often inaccurate. 
B) forecasts on the present state of the economy that are often inaccurate. 
C) forecasts on the present state of the economy that are often accurate. 
D) all of these.

Question 5

Assume that the federal government wishes to counteract inflation with a policy that has the smallest impact on the federal budget.Which of the following would you recommend?

Accepted Answer

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

Question 6

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 7

Table 11-1  
-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 8

After September 11, 2001, President George W.Bush believed in the need for a fiscal stimulus.The proper fiscal policy to reflect this could include a(n)

Accepted Answer

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

Question 9

Table 11-1  
-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 10

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 11

Marginal propensity to consume (MPC) is the fraction of extra income that a household spends on consumption.

Accepted Answer

A) True 
 B)False

Question 12

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 13

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 14

Decreasing aggregate demand to eliminate an inflationary gap often creates the problem of

Accepted Answer

A) unemployment. 
B) increasing real GDP. 
C) increasing inflation. 
D) increasing the labor force. 
A) unemployment. 
B) increasing real GDP. 
C) increasing inflation. 
D) increasing the labor force.

Question 15

A budget surplus occurs when tax revenues are greater than government expenditures.

Accepted Answer

A) True 
 B)False

Question 16

The hallmark of Clintonomics was first to reduce the budget deficit.

Accepted Answer

A) True 
 B)False

Question 17

An increase in government expenditures is an example of expansionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 18

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 19

A proponent of supply-side economics would advocate

Accepted Answer

A) increasing income taxes on saving. 
B) reducing corporate income tax. 
C) increasing capital gains tax. 
D) increasing personal income tax. 
A) increasing income taxes on saving. 
B) reducing corporate income tax. 
C) increasing capital gains tax. 
D) increasing personal income tax.

Question 20

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.

Exam 27: Managing Aggregate Demand: Fiscal Policy

The primary goal of supply-side economics is to

The Reagan tax cuts of the 1980s

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?

Tax and spending policies affect aggregate demand only after some time elapses.Due to these time lags, fiscal policies end up getting based on

Assume that the federal government wishes to counteract inflation with a policy that has the smallest impact on the federal budget.Which of the following would you recommend?

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

Table 11-1 -Refer to Table 11-1.What is the level of consumption in this model?

After September 11, 2001, President George W.Bush believed in the need for a fiscal stimulus.The proper fiscal policy to reflect this could include a(n)

Table 11-1 -Refer to Table 11-1.What is the level of tax revenues in this model?

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

Marginal propensity to consume (MPC) is the fraction of extra income that a household spends on consumption.

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

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

Decreasing aggregate demand to eliminate an inflationary gap often creates the problem of

A budget surplus occurs when tax revenues are greater than government expenditures.

The hallmark of Clintonomics was first to reduce the budget deficit.

An increase in government expenditures is an example of expansionary fiscal policy.

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

A proponent of supply-side economics would advocate

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?

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

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