Question 1

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 2

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 3

Transfer payments resemble

Accepted Answer

A)  negative taxes. 
B)  positive taxes. 
C)  exports. 
D)  none of these. 
A)  negative taxes. 
B)  positive taxes. 
C)  exports. 
D)  none of these.

Question 4

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 5

Most economists have reached the following conclusion about supply-side economics.

Accepted Answer

A)  Supply-side tax cuts are likely to reduce income inequality. 
B)  Supply-side tax cuts are almost certain to lead to smaller budget deficits. 
C)  Supply-side tax cuts are likely to widen income inequality. 
D)  None of these. 
A)  Supply-side tax cuts are likely to reduce income inequality. 
B)  Supply-side tax cuts are almost certain to lead to smaller budget deficits. 
C)  Supply-side tax cuts are likely to widen income inequality. 
D)  None of these.

Question 6

If income tax rates are increased in an attempt to balance the federal budget, we should expect to see

Accepted Answer

A)  an increase in consumption and a decrease in GDP. 
B)  an increase in consumption and an increase in GDP. 
C)  a decrease in consumption and a decrease in GDP. 
D)  a decrease in consumption and an increase in GDP. 
A)  an increase in consumption and a decrease in GDP. 
B)  an increase in consumption and an increase in GDP. 
C)  a decrease in consumption and a decrease in GDP. 
D)  a decrease in consumption and an increase in GDP.

Question 7

Why does a tax change affect aggregate demand?

Accepted Answer

A)  A tax change alters saving by an equal amount. 
B)  A tax change alters imports and net exports. 
C)  A tax change alters government spending by an equal amount. 
D)  A tax change alters disposable income and consumption spending. 
A)  A tax change alters saving by an equal amount. 
B)  A tax change alters imports and net exports. 
C)  A tax change alters government spending by an equal amount. 
D)  A tax change alters disposable income and consumption spending.

Question 8

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 9

If increases in government spending lead to inflation, the value of the multiplier is reduced.

Accepted Answer

A) True 
 B)False

Question 10

____ 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 11

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 12

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 13

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 14

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.

Question 15

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 16

A one-dollar tax reduction has the same effect as a one-dollar increase in government purchases.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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 19

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

Accepted Answer

A) True 
 B)False

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

When government increases a fixed tax, consumption schedule

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

Transfer payments resemble

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.

Most economists have reached the following conclusion about supply-side economics.

If income tax rates are increased in an attempt to balance the federal budget, we should expect to see

Why does a tax change affect aggregate demand?

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

If increases in government spending lead to inflation, the value of the multiplier is reduced.

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

Government transfer payments

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

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

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

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

A one-dollar tax reduction has the same effect as a one-dollar increase in government purchases.

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

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?

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

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 Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

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 Us Economy

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