Question 1

Government transfer payments act as automatic stabilizers because as labor income decreases, transfer payments

Accepted Answer

A) decrease as well. 
B) remain constant. 
C) increase. 
D) to the government increase. 
A) decrease as well. 
B) remain constant. 
C) increase. 
D) to the government increase.

Question 2

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 3

If a "liberal" wanted to decrease aggregate demand, which of the following would he or she tend to favor?

Accepted Answer

A) An increase in government spending, because it will increase the size of the public sector. 
B) A decrease in government spending, because it keeps the public sector small. 
C) An increase in transfer payments, because it has a larger multiplier than tax changes. 
D) An increase in taxes, because it makes the public sector larger. 
A) An increase in government spending, because it will increase the size of the public sector. 
B) A decrease in government spending, because it keeps the public sector small. 
C) An increase in transfer payments, because it has a larger multiplier than tax changes. 
D) An increase in taxes, because it makes the public sector larger.

Question 4

Income tax acts as a shock absorber because

Accepted Answer

A) it makes disposable income, and thus consumer spending, less sensitive to fluctuations in GDP. 
B) it makes disposable income, and thus consumer spending, more sensitive to fluctuations in GDP. 
C) it makes disposable income, and thus consumer spending, independent of fluctuations in GDP. 
D) none of these. 
A) it makes disposable income, and thus consumer spending, less sensitive to fluctuations in GDP. 
B) it makes disposable income, and thus consumer spending, more sensitive to fluctuations in GDP. 
C) it makes disposable income, and thus consumer spending, independent of fluctuations in GDP. 
D) none of these.

Question 5

What are the policies usually advocated by supply-side economists? How do they justify these proposals?

Accepted Answer

Following are the usual suggestions:
(a)

Question 6

President George W.Bush, who favored a smaller government sector,

Accepted Answer

A) believed we should increase G to eliminate a recessionary gap. 
B) believed we should raise taxes to eliminate an inflationary gap. 
C) favored an active fiscal policy just as well as those who favor a larger government sector. 
D) argued against the use of an active fiscal policy. 
A) believed we should increase G to eliminate a recessionary gap. 
B) believed we should raise taxes to eliminate an inflationary gap. 
C) favored an active fiscal policy just as well as those who favor a larger government sector. 
D) argued against the use of an active fiscal policy.

Question 7

Figure 11-1
​  
-In Figure 11-1, to achieve equilibrium at potential GDP, the government could

Accepted Answer

A) increase taxes. 
B) decrease transfer payments. 
C) increase government purchases. 
D) None of the above is correct. 
A) increase taxes. 
B) decrease transfer payments. 
C) increase government purchases. 
D) None of the above is correct.

Question 8

Unemployment insurance is an example of

Accepted Answer

A) automatic stabilizer. 
B) recessionary gap. 
C) tax 
D) all of these. 
A) automatic stabilizer. 
B) recessionary gap. 
C) tax 
D) all of these.

Question 9

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 10

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 11

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 12

Which of the following individuals would most likely favor an increase in government spending, as opposed to a tax cut, as the basis for expansionary fiscal policy?

Accepted Answer

A) "There must be a constant philosophical prejudice against any intervention by the state into our lives, for by definition such intervention abridges liberty."-William Simon 
B) "The bastards [read politicians] can't spend what they don't have."-Howard Jarvis 
C) "The family that takes its mauve and cerise, air-conditioned, power-steered, power-braked automobile through cities that are badly paved, made hideous by litter, [and] blighted buildings...to picnic beside a polluted stream amid the stench of refuse may properly reflect on the curious unevenness of their blessings."-J.K.Galbraith 
D) "Public expenditures are made for the primary benefit of the middle class and financed with taxes on the poor and rich."-Director's Law 
A) "There must be a constant philosophical prejudice against any intervention by the state into our lives, for by definition such intervention abridges liberty."-William Simon 
B) "The bastards [read politicians] can't spend what they don't have."-Howard Jarvis 
C) "The family that takes its mauve and cerise, air-conditioned, power-steered, power-braked automobile through cities that are badly paved, made hideous by litter, [and] blighted buildings...to picnic beside a polluted stream amid the stench of refuse may properly reflect on the curious unevenness of their blessings."-J.K.Galbraith 
D) "Public expenditures are made for the primary benefit of the middle class and financed with taxes on the poor and rich."-Director's Law

Question 13

The difference between a fixed tax and a variable tax is that

Accepted Answer

A) fixed taxes can never be changed, but variable taxes can be changed. 
B) a change in fixed taxes has no effect on aggregate demand, but a change in variable taxes has an impact. 
C) a variable tax changes when GDP changes, but a fixed tax does not change with GDP. 
D) a variable tax can be changed easily, whereas changing fixed taxes requires a constitutional amendment. 
A) fixed taxes can never be changed, but variable taxes can be changed. 
B) a change in fixed taxes has no effect on aggregate demand, but a change in variable taxes has an impact. 
C) a variable tax changes when GDP changes, but a fixed tax does not change with GDP. 
D) a variable tax can be changed easily, whereas changing fixed taxes requires a constitutional amendment.

Question 14

The multiplier for changes in taxes is smaller than the multiplier for changes in government purchases because not every dollar of tax cut is spent.

Accepted Answer

A) True 
 B)False

Question 15

There is some agreement between the beliefs of President George W.Bush in 2001 on the effectiveness of tax cuts with the beliefs of former President

Accepted Answer

A) Keynes. 
B) Clinton. 
C) Reagan. 
D) Carter. 
A) Keynes. 
B) Clinton. 
C) Reagan. 
D) Carter.

Question 16

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.

Question 17

The macroeconomic policy planner's job is made difficult because of

Accepted Answer

A) inaccurate multiplier estimates. 
B) timing problems. 
C) disagreements over potential GDP. 
D) uncertain forecasts. 
E) All of the above are correct. 
A) inaccurate multiplier estimates. 
B) timing problems. 
C) disagreements over potential GDP. 
D) uncertain forecasts. 
E) All of the above are correct.

Question 18

What is the difference between tax cuts imposed on higher-income households compared with lower- and middle-income households? Discuss the implications for the multiplier and the effectiveness of the tax cuts for boosting GDP.

Accepted Answer

Higher-income households tend to save a

Question 19

Transfer payments are income that is

Accepted Answer

A) earned but not received. 
B) received but not spent. 
C) spent but not earned. 
D) received but not earned. 
A) earned but not received. 
B) received but not spent. 
C) spent but not earned. 
D) received but not earned.

Question 20

If increases in government spending lead to inflation, the value of the multiplier is reduced.

Accepted Answer

A) True 
 B)False

Exam 27: Managing Aggregate Demand: Fiscal Policy

Government transfer payments act as automatic stabilizers because as labor income decreases, transfer payments

If personal income taxes are increased, disposable income and consumption

If a "liberal" wanted to decrease aggregate demand, which of the following would he or she tend to favor?

Income tax acts as a shock absorber because

What are the policies usually advocated by supply-side economists? How do they justify these proposals?

President George W.Bush, who favored a smaller government sector,

Figure 11-1 ​ -In Figure 11-1, to achieve equilibrium at potential GDP, the government could

Unemployment insurance is an example of

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

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

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

Which of the following individuals would most likely favor an increase in government spending, as opposed to a tax cut, as the basis for expansionary fiscal policy?

The difference between a fixed tax and a variable tax is that

The multiplier for changes in taxes is smaller than the multiplier for changes in government purchases because not every dollar of tax cut is spent.

There is some agreement between the beliefs of President George W.Bush in 2001 on the effectiveness of tax cuts with the beliefs of former President

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

The macroeconomic policy planner's job is made difficult because of

What is the difference between tax cuts imposed on higher-income households compared with lower- and middle-income households? Discuss the implications for the multiplier and the effectiveness of the tax cuts for boosting GDP.

Transfer payments are income that is

If increases in government spending lead to inflation, the value of the multiplier is reduced.

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

Filters

Figure 11-1 -In Figure 11-1, to achieve equilibrium at potential GDP, the government could