Question 1

If the value of the multiplier is smaller, the economy

Accepted Answer

A) becomes less stable because automatic stabilizers have a larger impact. 
B) becomes more stable because automatic stabilizers have a larger impact. 
C) becomes more volatile because automatic stabilizers have a lesser impact. 
D) is subject to larger fluctuations because automatic stabilizers have no impact. 
A) becomes less stable because automatic stabilizers have a larger impact. 
B) becomes more stable because automatic stabilizers have a larger impact. 
C) becomes more volatile because automatic stabilizers have a lesser impact. 
D) is subject to larger fluctuations because automatic stabilizers have no impact.

Question 2

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 3

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 4

Contractionary fiscal policy tools can eliminate an inflationary gap arising from a continuation of current budget policies.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 7

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 8

Expansionary fiscal policy can mitigate recessions, but it also

Accepted Answer

A) raises the budget deficit. 
B) reduces the budget deficit. 
C) has no impact on the budget deficit. 
D) none of these. 
A) raises the budget deficit. 
B) reduces the budget deficit. 
C) has no impact on the budget deficit. 
D) none of these.

Question 9

Supply-side tax cuts designed to increase investment spending are attractive in theory, but in practice

Accepted Answer

A) the effect is the opposite of what theory suggests. 
B) are less useful, because they take a long time to increase the capital stock. 
C) they have no effect on the capital stock in the short or long run. 
D) are powerful in the short run as capital stock rapidly increases, but the effect tapers off in the long run. 
A) the effect is the opposite of what theory suggests. 
B) are less useful, because they take a long time to increase the capital stock. 
C) they have no effect on the capital stock in the short or long run. 
D) are powerful in the short run as capital stock rapidly increases, but the effect tapers off in the long run.

Question 10

Suppose the federal government is considering alternatives to increase the level of real GDP in order to reduce unemployment.It can only do one of the following.Which will have the smallest impact on the federal budget?

Accepted Answer

A) Decreasing transfer payments 
B) Increasing government spending 
C) Increasing transfer payments 
D) Decreasing government spending 
A) Decreasing transfer payments 
B) Increasing government spending 
C) Increasing transfer payments 
D) Decreasing government spending

Question 11

If the federal government wishes to move the economy out of a recessionary gap, the appropriate fiscal policy is a(n)

Accepted Answer

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

Question 12

An increase in taxes shifts the

Accepted Answer

A) aggregate supply curve outward. 
B) aggregate demand curve outward. 
C) consumption schedule upward. 
D) consumption schedule downward. 
A) aggregate supply curve outward. 
B) aggregate demand curve outward. 
C) consumption schedule upward. 
D) consumption schedule downward.

Question 13

Figure 11-1
​  
-In Figure 11-1, the slope of the expenditures schedule is 0.75, and the government wishes to achieve full employment.It should

Accepted Answer

A) cut spending by 1,000. 
B) increase spending by 1,000. 
C) cut taxes by 1,000. 
D) increase spending by 250. 
E) cut taxes by 250. 
A) cut spending by 1,000. 
B) increase spending by 1,000. 
C) cut taxes by 1,000. 
D) increase spending by 250. 
E) cut taxes by 250.

Question 14

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 15

How do transfer payments function as negative taxes?

Accepted Answer

Transfer payments intervene between gros

Question 16

In contrast to changes in government spending, tax changes affect spending

Accepted Answer

A) directly. 
B) in the same proportion. 
C) by a greater amount. 
D) indirectly. 
A) directly. 
B) in the same proportion. 
C) by a greater amount. 
D) indirectly.

Question 17

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.

Question 18

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 19

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 20

Supply-siders ignore the effects of tax cuts on

Accepted Answer

A) aggregate demand. 
B) aggregate supply. 
C) aggregate demand and aggregate supply. 
D) none of these. 
A) aggregate demand. 
B) aggregate supply. 
C) aggregate demand and aggregate supply. 
D) none of these.

Exam 27: Managing Aggregate Demand: Fiscal Policy

If the value of the multiplier is smaller, the economy

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?

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

Contractionary fiscal policy tools can eliminate an inflationary gap arising from a continuation of current budget policies.

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

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

An increase in taxes will cause the consumption schedule to

Expansionary fiscal policy can mitigate recessions, but it also

Supply-side tax cuts designed to increase investment spending are attractive in theory, but in practice

Suppose the federal government is considering alternatives to increase the level of real GDP in order to reduce unemployment.It can only do one of the following.Which will have the smallest impact on the federal budget?

If the federal government wishes to move the economy out of a recessionary gap, the appropriate fiscal policy is a(n)

An increase in taxes shifts the

Figure 11-1 ​ -In Figure 11-1, the slope of the expenditures schedule is 0.75, and the government wishes to achieve full employment.It should

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

How do transfer payments function as negative taxes?

In contrast to changes in government spending, tax changes affect spending

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

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)

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

Supply-siders ignore the effects of tax cuts on

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, the slope of the expenditures schedule is 0.75, and the government wishes to achieve full employment.It should