Question 1

Policy makers and citizens who want to expand the size of the government sector would favor stabilization policies that

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 2

A "liberal" 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 restraint 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 restraint is necessary.

Question 3

The addition of imports reduces the value of the multiplier.

Accepted Answer

A) True 
 B)False

Question 4

A tax reduction shifts the consumption schedule downward.

Accepted Answer

A) True 
 B)False

Question 5

Fiscal policy may be mistimed due to

Accepted Answer

A) the jet lag. 
B) the putting lag. 
C) the impact lag. 
D) All of these. 
A) the jet lag. 
B) the putting lag. 
C) the impact lag. 
D) All of these.

Question 6

Which of the following factors has the most quantitative importance on the oversimplified multiplier formula?

Accepted Answer

A) It ignores variable imports. 
B) It ignores price-level changes. 
C) It ignores income taxes. 
D) All of these equally affect the oversimplified multiplier formula. 
A) It ignores variable imports. 
B) It ignores price-level changes. 
C) It ignores income taxes. 
D) All of these equally affect the oversimplified multiplier formula.

Question 7

Changes in government spending

Accepted Answer

A) are an indirect component of the expenditures schedule. 
B) have a different multiplier effect than changes in business investment spending. 
C) are a direct component of the expenditures schedule and have the same multiplier effect as changes in business investment spending. 
D) do not have an effect on spending if they are matched by tax changes. 
A) are an indirect component of the expenditures schedule. 
B) have a different multiplier effect than changes in business investment spending. 
C) are a direct component of the expenditures schedule and have the same multiplier effect as changes in business investment spending. 
D) do not have an effect on spending if they are matched by tax changes.

Question 8

When taxes are decreased, disposable income increases even though GDP is unchanged.

Accepted Answer

A) True 
 B)False

Question 9

Taxes constitute the difference between GDP and disposable income.

Accepted Answer

A) True 
 B)False

Question 10

The aim of the supply-side tax cuts is to push the economy's aggregate supply curve outward to the right.

Accepted Answer

A) True 
 B)False

Question 11

"Fiscal policy" is the federal government's plan for

Accepted Answer

A) international trade, designed to balance exports and imports. 
B) spending and taxes, designed to influence the level of aggregate demand. 
C) manipulating the money supply and the control of interest rates. 
D) All of the above are correct. 
A) international trade, designed to balance exports and imports. 
B) spending and taxes, designed to influence the level of aggregate demand. 
C) manipulating the money supply and the control of interest rates. 
D) All of the above are correct.

Question 12

Supply-side tax cuts are likely to widen income inequalities.

Accepted Answer

A) True 
 B)False

Question 13

Historically, the government has used fiscal policy to affect the economy through

Accepted Answer

A) central planning. 
B) indicative planning. 
C) aggregate demand. 
D) aggregate supply. 
A) central planning. 
B) indicative planning. 
C) aggregate demand. 
D) aggregate supply.

Question 14

An increase in Social Security payments to retired persons has what effect on equilibrium income?

Accepted Answer

A) GDP will fall. 
B) GDP will rise. 
C) GDP will remain the same. 
D) GDP will fall by less than the increase in payments. 
A) GDP will fall. 
B) GDP will rise. 
C) GDP will remain the same. 
D) GDP will fall by less than the increase in payments.

Question 15

A conservative who was opposed to an increase in the size of the government sector but believed in the Keynesian approach to aggregate demand management would most likely favor which of the following expansionary policies?

Accepted Answer

A) Increase taxes 
B) Decrease taxes 
C) Increase government spending 
D) Decrease government spending 
A) Increase taxes 
B) Decrease taxes 
C) Increase government spending 
D) Decrease government spending

Question 16

Explain some of the steps that a government would wish to adopt in an inflationary environment.

Accepted Answer

In the case of an inflationary gap, real

Question 17

Figure 11-1
​  
-In the middle of a severe recession, Congress passes an increase in the level of unemployment benefits.This would be considered by economists as a

Accepted Answer

A) positive tax. 
B) negative tax. 
C) form of government purchases. 
D) variable tax. 
A) positive tax. 
B) negative tax. 
C) form of government purchases. 
D) variable tax.

Question 18

Government purchases and income taxes have the same effect on the multiplier.

Accepted Answer

A) True 
 B)False

Question 19

In an effort to balance the budget, the government cuts spending rather than increasing taxes.What will happen to the consumption schedule?

Accepted Answer

A) It will become steeper. 
B) It will become flatter. 
C) It will shift upward. 
D) It will shift downward. 
E) It will remain the same and move along it. 
A) It will become steeper. 
B) It will become flatter. 
C) It will shift upward. 
D) It will shift downward. 
E) It will remain the same and move along it.

Question 20

One of the objections to the supply-side economics is that it tends to ignore the effects of tax cuts on aggregate demand.

Accepted Answer

A) True 
 B)False

Exam 27: Managing Aggregate Demand: Fiscal Policy

Policy makers and citizens who want to expand the size of the government sector would favor stabilization policies that

A "liberal" would most likely argue in favor of

The addition of imports reduces the value of the multiplier.

A tax reduction shifts the consumption schedule downward.

Fiscal policy may be mistimed due to

Which of the following factors has the most quantitative importance on the oversimplified multiplier formula?

Changes in government spending

When taxes are decreased, disposable income increases even though GDP is unchanged.

Taxes constitute the difference between GDP and disposable income.

The aim of the supply-side tax cuts is to push the economy's aggregate supply curve outward to the right.

"Fiscal policy" is the federal government's plan for

Supply-side tax cuts are likely to widen income inequalities.

Historically, the government has used fiscal policy to affect the economy through

An increase in Social Security payments to retired persons has what effect on equilibrium income?

A conservative who was opposed to an increase in the size of the government sector but believed in the Keynesian approach to aggregate demand management would most likely favor which of the following expansionary policies?

Explain some of the steps that a government would wish to adopt in an inflationary environment.

Figure 11-1 ​ -In the middle of a severe recession, Congress passes an increase in the level of unemployment benefits.This would be considered by economists as a

Government purchases and income taxes have the same effect on the multiplier.

In an effort to balance the budget, the government cuts spending rather than increasing taxes.What will happen to the consumption schedule?

One of the objections to the supply-side economics is that it tends to ignore the effects of tax cuts on aggregate demand.

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 the middle of a severe recession, Congress passes an increase in the level of unemployment benefits.This would be considered by economists as a