Question 1

In an effort to balance the federal budget, an increase in Social Security taxes is passed.What is the most likely effect of this on equilibrium GDP?

Accepted Answer

A) GDP will increase. 
B) GDP will decrease. 
C) GDP will not change but prices will rise. 
D) GDP will not change but employment will increase. 
A) GDP will increase. 
B) GDP will decrease. 
C) GDP will not change but prices will rise. 
D) GDP will not change but employment will increase.

Question 2

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 3

A major complication with fiscal policy to control aggregate demand is the

Accepted Answer

A) inability to agree on macroeconomic goals. 
B) accuracy of modern forecasting models. 
C) inability to change aggregate demand with fiscal tools. 
D) constantly changing investment and net exports because of other events. 
A) inability to agree on macroeconomic goals. 
B) accuracy of modern forecasting models. 
C) inability to change aggregate demand with fiscal tools. 
D) constantly changing investment and net exports because of other events.

Question 4

If the federal government increases the amount of Social Security benefits for retired persons, then the

Accepted Answer

A) consumption schedule will shift upward. 
B) aggregate demand curve will shift outward. 
C) effect on equilibrium GDP will be the same as a cut in taxes. 
D) All of the above are correct. 
A) consumption schedule will shift upward. 
B) aggregate demand curve will shift outward. 
C) effect on equilibrium GDP will be the same as a cut in taxes. 
D) All of the above are correct.

Question 5

Most tax payments increase as GDP increases.

Accepted Answer

A) True 
 B)False

Question 6

Capital gains tax cuts inevitably benefit

Accepted Answer

A) low-income workers. 
B) retired persons. 
C) workers in large cities. 
D) high-income stock owners. 
A) low-income workers. 
B) retired persons. 
C) workers in large cities. 
D) high-income stock owners.

Question 7

A "conservative" would most likely argue in favor of

Accepted Answer

A) tax increases when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
B) tax cuts when fiscal restraint is necessary, and spending cuts when fiscal stimulus is necessary. 
C) tax cuts when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
D) spending increases when fiscal expansion is necessary, and tax increases when fiscal stimulus is necessary. 
A) tax increases when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
B) tax cuts when fiscal restraint is necessary, and spending cuts when fiscal stimulus is necessary. 
C) tax cuts when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary. 
D) spending increases when fiscal expansion is necessary, and tax increases when fiscal stimulus is necessary.

Question 8

If the MPC in the United States was high, it would increase the value of the multiplier.

Accepted Answer

A) True 
 B)False

Question 9

You are a member of Congress in 2007-2009 when the economy is in a recessionary gap.If your goal is to achieve full employment, you should vote for

Accepted Answer

A) decreased government purchases, increased taxes, and a cut in transfer payments. 
B) a balanced federal budget. 
C) increased government purchases, decreased taxes, and an increase in transfer payments. 
D) increased government purchases and transfer payments, and an equal increase in taxes. 
A) decreased government purchases, increased taxes, and a cut in transfer payments. 
B) a balanced federal budget. 
C) increased government purchases, decreased taxes, and an increase in transfer payments. 
D) increased government purchases and transfer payments, and an equal increase in taxes.

Question 10

Government transfer payments

Accepted Answer

A) are subtracted from national income to obtain disposable income. 
B) can be considered as negative taxes. 
C) intervene between national product and disposable income in the same way as taxes. 
D) are counted the same as taxes in computing national income. 
A) are subtracted from national income to obtain disposable income. 
B) can be considered as negative taxes. 
C) intervene between national product and disposable income in the same way as taxes. 
D) are counted the same as taxes in computing national income.

Question 11

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 12

Ronald Reagan's presidency could be characterized as a period of

Accepted Answer

A) passive monetary policy. 
B) passive fiscal policy. 
C) active fiscal policy. 
D) active regulatory policy. 
A) passive monetary policy. 
B) passive fiscal policy. 
C) active fiscal policy. 
D) active regulatory policy.

Question 13

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 14

____ is the income actually available to the consumers that determines aggregate demand.

Accepted Answer

A) Nominal income 
B) Net domestic product 
C) Income corrected for depreciation 
D) Disposable income 
A) Nominal income 
B) Net domestic product 
C) Income corrected for depreciation 
D) Disposable income

Question 15

For liberals, the United States has a(n)

Accepted Answer

A) public sector that is too large. 
B) private sector that is too small. 
C) economy that is too heavily regulated. 
D) public sector that is too small. 
A) public sector that is too large. 
B) private sector that is too small. 
C) economy that is too heavily regulated. 
D) public sector that is too small.

Question 16

Productivity increases, brought about by increased education and training, may shift the aggregate supply curve outward.

Accepted Answer

A) True 
 B)False

Question 17

Tax cuts associated with supply-side economics often lead to increased

Accepted Answer

A) federal budget surpluses. 
B) federal budget deficits. 
C) foreign trade surpluses. 
D) government spending. 
A) federal budget surpluses. 
B) federal budget deficits. 
C) foreign trade surpluses. 
D) government spending.

Question 18

How does the multiplier for a change in government spending compare to the multiplier for a change in taxes?

Accepted Answer

A) It is smaller. 
B) It is the same. 
C) It is larger. 
D) It cannot be calculated. 
A) It is smaller. 
B) It is the same. 
C) It is larger. 
D) It cannot be calculated.

Question 19

How does a tax cut affect the expenditure schedule?

Accepted Answer

A) It causes movement to the left along the schedule. 
B) It causes the schedule to shift upward. 
C) It causes movement to the right along the schedule. 
D) It causes the schedule to shift downward. 
A) It causes movement to the left along the schedule. 
B) It causes the schedule to shift upward. 
C) It causes movement to the right along the schedule. 
D) It causes the schedule to shift downward.

Question 20

According to Keynesian theory, a decrease in government expenditures would be a proper fiscal policy during

Accepted Answer

A) an inflationary gap. 
B) a recessionary gap. 
C) a natural disaster. 
D) none of these. 
A) an inflationary gap. 
B) a recessionary gap. 
C) a natural disaster. 
D) none of these.

Exam 27: Managing Aggregate Demand: Fiscal Policy

In an effort to balance the federal budget, an increase in Social Security taxes is passed.What is the most likely effect of this on equilibrium GDP?

The main idea behind supply-side tax cuts is that

A major complication with fiscal policy to control aggregate demand is the

If the federal government increases the amount of Social Security benefits for retired persons, then the

Most tax payments increase as GDP increases.

Capital gains tax cuts inevitably benefit

A "conservative" would most likely argue in favor of

If the MPC in the United States was high, it would increase the value of the multiplier.

You are a member of Congress in 2007-2009 when the economy is in a recessionary gap.If your goal is to achieve full employment, you should vote for

Government transfer payments

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

Ronald Reagan's presidency could be characterized as a period of

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

____ is the income actually available to the consumers that determines aggregate demand.

For liberals, the United States has a(n)

Productivity increases, brought about by increased education and training, may shift the aggregate supply curve outward.

Tax cuts associated with supply-side economics often lead to increased

How does the multiplier for a change in government spending compare to the multiplier for a change in taxes?

How does a tax cut affect the expenditure schedule?

According to Keynesian theory, a decrease in government expenditures would be a proper fiscal policy during

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 economy is experiencing a(n)