Question 1

The use of spending and taxes by the government to influence aggregate demand is known as

Accepted Answer

A) monetary policy. 
B) governmental policy. 
C) administrative policy. 
D) fiscal policy. 
E) federal policy. 
A) monetary policy. 
B) governmental policy. 
C) administrative policy. 
D) fiscal policy. 
E) federal policy.

Question 2

In 2009, President Obama and Congress stimulated aggregate demand by

Accepted Answer

A) increasing taxes and government spending. 
B) decreasing taxes and government spending. 
C) increasing taxes and decreasing government spending. 
D) decreasing taxes and increasing government spending. 
A) increasing taxes and government spending. 
B) decreasing taxes and government spending. 
C) increasing taxes and decreasing government spending. 
D) decreasing taxes and increasing government spending.

Question 3

Reductions in the personal income tax, often advocated by supply-siders to increase labor supply and effort, can be expected to also

Accepted Answer

A) decrease consumption spending. 
B) increase consumption spending. 
C) decrease investment spending. 
D) increase export sales. 
A) decrease consumption spending. 
B) increase consumption spending. 
C) decrease investment spending. 
D) increase export sales.

Question 4

Inflationary gaps can be cured by either cutting government expenditures or raising taxes.

Accepted Answer

A) True 
 B)False

Question 5

Critics of supply-side economics argue that tax cuts favored by supply-siders will have the greatest effect on

Accepted Answer

A) aggregate supply. 
B) tax receipts. 
C) aggregate demand. 
D) the money supply. 
A) aggregate supply. 
B) tax receipts. 
C) aggregate demand. 
D) the money supply.

Question 6

With regard to GDP, residential property taxes are an example of ____ taxes.

Accepted Answer

A) variable 
B) sales 
C) fixed 
D) disposable 
A) variable 
B) sales 
C) fixed 
D) disposable

Question 7

When the economy has an income tax that is variable, the multiplier is

Accepted Answer

A) unchanged. 
B) larger. 
C) smaller. 
D) unpredictable. 
A) unchanged. 
B) larger. 
C) smaller. 
D) unpredictable.

Question 8

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

Accepted Answer

A) The expenditure schedule will shift upward and become steeper. 
B) The expenditure schedule will shift upward and become less steep. 
C) The expenditure schedule will shift downward and become less steep. 
D) The expenditure schedule will shift downward and become steeper. 
A) The expenditure schedule will shift upward and become steeper. 
B) The expenditure schedule will shift upward and become less steep. 
C) The expenditure schedule will shift downward and become less steep. 
D) The expenditure schedule will shift downward and become steeper.

Question 9

When government increases a fixed tax, consumption schedule

Accepted Answer

A) shifts downward in a parallel manner. 
B) shifts upward in a parallel manner. 
C) becomes horizontal. 
D) becomes vertical. 
A) shifts downward in a parallel manner. 
B) shifts upward in a parallel manner. 
C) becomes horizontal. 
D) becomes vertical.

Question 10

Federal budget deficits are often increased by supply-side policies because of their reliance on

Accepted Answer

A) income tax cuts. 
B) income tax increases. 
C) increased government spending. 
D) decreased government spending. 
A) income tax cuts. 
B) income tax increases. 
C) increased government spending. 
D) decreased government spending.

Question 11

Do policy makers know the exact value of the fiscal multiplier?

Accepted Answer

A) No, economists have almost no idea of the value of fiscal multipliers. 
B) No, they are not known with complete accuracy. 
C) Yes, economists know the precise value of the multiplier. 
D) Yes, although there is a very small range of uncertainty in the value. 
A) No, economists have almost no idea of the value of fiscal multipliers. 
B) No, they are not known with complete accuracy. 
C) Yes, economists know the precise value of the multiplier. 
D) Yes, although there is a very small range of uncertainty in the value.

Question 12

For conservatives, the United States needs

Accepted Answer

A) an expanded public sector to protect consumers. 
B) a smaller public sector and less regulation. 
C) a larger tax rate and more government spending. 
D) more public goods and services, such as national health care. 
A) an expanded public sector to protect consumers. 
B) a smaller public sector and less regulation. 
C) a larger tax rate and more government spending. 
D) more public goods and services, such as national health care.

Question 13

The oversimplified formula for the multiplier is misleading because it ignores the effects of

Accepted Answer

A) price-level changes. 
B) the foreign sector. 
C) variable taxes. 
D) All of the above are correct. 
A) price-level changes. 
B) the foreign sector. 
C) variable taxes. 
D) All of the above are correct.

Question 14

Which of the following observations is true?

Accepted Answer

A) Tax changes have no impact on the consumption schedule. 
B) Tax reduction shifts the consumption schedule upward. 
C) Changes in taxes have a multiplier effect on equilibrium GDP on the supply-side. 
D) Tax increases increase equilibrium GDP. 
A) Tax changes have no impact on the consumption schedule. 
B) Tax reduction shifts the consumption schedule upward. 
C) Changes in taxes have a multiplier effect on equilibrium GDP on the supply-side. 
D) Tax increases increase equilibrium GDP.

Question 15

As a general rule, when an income tax is added to the basic macroeconomic model, what happens to the consumption schedule?

Accepted Answer

A) It will shift downward. 
B) It will shift upward. 
C) It will become flatter. 
D) It will become steeper. 
A) It will shift downward. 
B) It will shift upward. 
C) It will become flatter. 
D) It will become steeper.

Question 16

Taxes are the difference between

Accepted Answer

A) GDP and net exports. 
B) GDP and consumer spending. 
C) consumer spending and saving. 
D) GDP and disposable income. 
A) GDP and net exports. 
B) GDP and consumer spending. 
C) consumer spending and saving. 
D) GDP and disposable income.

Question 17

If President Obama wanted to decrease aggregate demand, which of the following would he 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 would not make the public sector smaller. 
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 would not make the public sector smaller.

Question 18

A proponent of supply-side economics would advocate

Accepted Answer

A) reducing income taxes on saving. 
B) reducing tax credits for research and development. 
C) eliminating the depreciation allowance. 
D) increasing the corporate income tax. 
A) reducing income taxes on saving. 
B) reducing tax credits for research and development. 
C) eliminating the depreciation allowance. 
D) increasing the corporate income tax.

Question 19

Figure 11-2
​  
-Which graph in Figure 11-2 best reflects a Keynesian's view of the impact of raising taxes on saving?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 20

Recessionary gaps can be cured by raising government expenditures.

Accepted Answer

A) True 
 B)False

Exam 27: Managing Aggregate Demand: Fiscal Policy

The use of spending and taxes by the government to influence aggregate demand is known as

In 2009, President Obama and Congress stimulated aggregate demand by

Reductions in the personal income tax, often advocated by supply-siders to increase labor supply and effort, can be expected to also

Inflationary gaps can be cured by either cutting government expenditures or raising taxes.

Critics of supply-side economics argue that tax cuts favored by supply-siders will have the greatest effect on

With regard to GDP, residential property taxes are an example of ____ taxes.

When the economy has an income tax that is variable, the multiplier is

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

When government increases a fixed tax, consumption schedule

Federal budget deficits are often increased by supply-side policies because of their reliance on

Do policy makers know the exact value of the fiscal multiplier?

For conservatives, the United States needs

The oversimplified formula for the multiplier is misleading because it ignores the effects of

Which of the following observations is true?

As a general rule, when an income tax is added to the basic macroeconomic model, what happens to the consumption schedule?

Taxes are the difference between

If President Obama wanted to decrease aggregate demand, which of the following would he tend to favor?

A proponent of supply-side economics would advocate

Figure 11-2 ​ -Which graph in Figure 11-2 best reflects a Keynesian's view of the impact of raising taxes on saving?

Recessionary gaps can be cured by raising government expenditures.

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 11-2 -Which graph in Figure 11-2 best reflects a Keynesian's view of the impact of raising taxes on saving?