Question 1

Most of the taxes collected by governments tend to

Accepted Answer

A) remain fixed. 
B) move in the opposite direction from GDP. 
C) be sales taxes. 
D) rise and fall with the level of GDP. 
A) remain fixed. 
B) move in the opposite direction from GDP. 
C) be sales taxes. 
D) rise and fall with the level of GDP.

Question 2

When the government taxes and spends, each activity affects GDP in the same proportion.

Accepted Answer

A) True 
 B)False

Question 3

To close a recessionary gap, Keynesian theory calls for

Accepted Answer

A) expansionary fiscal policy. 
B) contractionary fiscal policy. 
C) international trade. 
D) none of these. 
A) expansionary fiscal policy. 
B) contractionary fiscal policy. 
C) international trade. 
D) none of these.

Question 4

Figure 11-2
​  
-Which graph in Figure 11-2 best reflects a Keynesian's view of the short-run impact of an increase in the personal income tax rate?

Accepted Answer

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

Question 5

Transfer payments represent income that is not earned but received by individuals.

Accepted Answer

A) True 
 B)False

Question 6

When income taxes are included in the basic macroeconomic model, the value of the

Accepted Answer

A) inflationary effect is increased. 
B) multiplier is increased. 
C) multiplier is decreased. 
D) expenditure function is increased. 
A) inflationary effect is increased. 
B) multiplier is increased. 
C) multiplier is decreased. 
D) expenditure function is increased.

Question 7

Figure 11-2
​  
-Which graph in Figure 11-2 best reflects a supply-sider's view of the impact of an increase in the personal income tax rate?

Accepted Answer

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

Question 8

Figure 11-3
​  
-In Figure 11-3, which line represents the change in the consumption schedule caused by a cut in the personal income tax as advocated by President George W.Bush in 2001?

Accepted Answer

A) C1 in graph (a) 
B) C2 in graph (a) 
C) C1 in graph (b) 
D) C2 in graph (b) 
A) C1 in graph (a) 
B) C2 in graph (a) 
C) C1 in graph (b) 
D) C2 in graph (b)

Question 9

Contractionary fiscal policy may have some undesirable consequences.Among these is

Accepted Answer

A) higher unemployment. 
B) higher inflation. 
C) higher net exports. 
D) larger federal deficits. 
A) higher unemployment. 
B) higher inflation. 
C) higher net exports. 
D) larger federal deficits.

Question 10

To eliminate an inflationary gap, the expenditure schedule should

Accepted Answer

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

Question 11

Liberals tend to favor increasing taxes as the method of counteracting inflation.

Accepted Answer

A) True 
 B)False

Question 12

One of the three reasons as to why the oversimplified multiplier formula overstates the multiplier is that it ignores price-level changes, which reduce the multiplier.

Accepted Answer

A) True 
 B)False

Question 13

In 2009, the U.S.economy was experiencing a(n)

Accepted Answer

A) recessionary gap. 
B) inflationary gap. 
C) balance of trade deficit. 
D) hyperinflation. 
A) recessionary gap. 
B) inflationary gap. 
C) balance of trade deficit. 
D) hyperinflation.

Question 14

Which of the following is an example of contractionary fiscal policy?

Accepted Answer

A) Cutting spending 
B) Reducing taxes 
C) Increasing spending 
D) None of these 
A) Cutting spending 
B) Reducing taxes 
C) Increasing spending 
D) None of these

Question 15

In 2000, many economists believed that the most serious macroeconomic problem confronting the U.S.economy was an inflationary gap.Which policies would be effective in dealing with this problem?

Accepted Answer

A) Increase transfer payments. 
B) Increase government purchases. 
C) Decrease personal income taxes. 
D) Increase personal income taxes. 
A) Increase transfer payments. 
B) Increase government purchases. 
C) Decrease personal income taxes. 
D) Increase personal income taxes.

Question 16

When policy makers choose between tax policy and spending policy to affect the level of aggregate demand, they tend to choose on the basis of

Accepted Answer

A) how large a public sector they want. 
B) how much they want to change aggregate demand. 
C) how much they want to change aggregate supply. 
D) which has the larger multiplier. 
A) how large a public sector they want. 
B) how much they want to change aggregate demand. 
C) how much they want to change aggregate supply. 
D) which has the larger multiplier.

Question 17

A reduction in the capital gains tax, often advocated by proponents of supply-side economics, is supposed to stimulate increased

Accepted Answer

A) consumer spending. 
B) net exports. 
C) investment spending. 
D) government spending. 
A) consumer spending. 
B) net exports. 
C) investment spending. 
D) government spending.

Question 18

Automatic stabilizers are features of the economy that reduces its sensitivity to shocks, such as sharp increases or decreases in spending.

Accepted Answer

A) True 
 B)False

Question 19

When total expenditures exceed the economy's potential GDP, the proper fiscal policy is to

Accepted Answer

A) increase transfer payments to the poor and elderly. 
B) cut personal income tax rates. 
C) decrease government purchases. 
D) increase purchasing power. 
A) increase transfer payments to the poor and elderly. 
B) cut personal income tax rates. 
C) decrease government purchases. 
D) increase purchasing power.

Question 20

A Keynesian economist would expect a supply-side tax cut to shift

Accepted Answer

A) only the aggregate supply curve outward. 
B) only the aggregate demand curve outward. 
C) both the aggregate demand and aggregate supply curves outward. 
D) the aggregate supply curve outward and the aggregate demand curve inward. 
A) only the aggregate supply curve outward. 
B) only the aggregate demand curve outward. 
C) both the aggregate demand and aggregate supply curves outward. 
D) the aggregate supply curve outward and the aggregate demand curve inward.

Exam 27: Managing Aggregate Demand: Fiscal Policy

Most of the taxes collected by governments tend to

When the government taxes and spends, each activity affects GDP in the same proportion.

To close a recessionary gap, Keynesian theory calls for

Figure 11-2 ​ -Which graph in Figure 11-2 best reflects a Keynesian's view of the short-run impact of an increase in the personal income tax rate?

Transfer payments represent income that is not earned but received by individuals.

When income taxes are included in the basic macroeconomic model, the value of the

Figure 11-2 ​ -Which graph in Figure 11-2 best reflects a supply-sider's view of the impact of an increase in the personal income tax rate?

Figure 11-3 ​ -In Figure 11-3, which line represents the change in the consumption schedule caused by a cut in the personal income tax as advocated by President George W.Bush in 2001?

Contractionary fiscal policy may have some undesirable consequences.Among these is

To eliminate an inflationary gap, the expenditure schedule should

Liberals tend to favor increasing taxes as the method of counteracting inflation.

One of the three reasons as to why the oversimplified multiplier formula overstates the multiplier is that it ignores price-level changes, which reduce the multiplier.

In 2009, the U.S.economy was experiencing a(n)

Which of the following is an example of contractionary fiscal policy?

In 2000, many economists believed that the most serious macroeconomic problem confronting the U.S.economy was an inflationary gap.Which policies would be effective in dealing with this problem?

When policy makers choose between tax policy and spending policy to affect the level of aggregate demand, they tend to choose on the basis of

A reduction in the capital gains tax, often advocated by proponents of supply-side economics, is supposed to stimulate increased

Automatic stabilizers are features of the economy that reduces its sensitivity to shocks, such as sharp increases or decreases in spending.

When total expenditures exceed the economy's potential GDP, the proper fiscal policy is to

A Keynesian economist would expect a supply-side tax cut to shift

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 short-run impact of an increase in the personal income tax rate?

Figure 11-2 -Which graph in Figure 11-2 best reflects a supply-sider's view of the impact of an increase in the personal income tax rate?

Figure 11-3 -In Figure 11-3, which line represents the change in the consumption schedule caused by a cut in the personal income tax as advocated by President George W.Bush in 2001?