Question 1

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 2

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 3

Marginal propensity to consume (MPC) is the fraction of extra income that a household spends on consumption.

Accepted Answer

A) True 
 B)False

Question 4

Fiscal policy is the use of taxes and spending by the government to affect aggregate demand.

Accepted Answer

A) True 
 B)False

Question 5

Table 11-1
  Refer to Table 11-1. What is the level of consumption in this model?

Accepted Answer

A)  2,950 
B)  2,750 
C)  2,550 
D)  2,350 
E)  2,150 
A)  2,950 
B)  2,750 
C)  2,550 
D)  2,350 
E)  2,150

Question 6

Government can raise GDP by $1,000 billion by

Accepted Answer

A)  raising government purchases 
B)  reducing taxes 
C)  increasing transfer payments 
D)  all of the above 
A)  raising government purchases 
B)  reducing taxes 
C)  increasing transfer payments 
D)  all of the above

Question 7

Supply-side tax cuts are more likely to have the intended beneficial effect on

Accepted Answer

A)  budget deficits. 
B)  consumer spending. 
C)  investment spending. 
D)  net exports. 
A)  budget deficits. 
B)  consumer spending. 
C)  investment spending. 
D)  net exports.

Question 8

The macroeconomic policy planner's job is made difficult because of

Accepted Answer

A)  inaccurate multiplier estimates. 
B)  timing problems. 
C)  disagreements over potential GDP. 
D)  uncertain forecasts. 
E)  All of the above are correct. 
A)  inaccurate multiplier estimates. 
B)  timing problems. 
C)  disagreements over potential GDP. 
D)  uncertain forecasts. 
E)  All of the above are correct.

Question 9

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 10

Congress is debating whether to raise taxes by $100 billion or decrease spending by $100 billion in order to eliminate a budget deficit. Which action will have the larger effect on equilibrium GDP?

Accepted Answer

A)  The increase in taxes 
B)  The decrease in spending 
C)  The effects will be equal 
D)  Not possible to determine without knowing the multiplier 
A)  The increase in taxes 
B)  The decrease in spending 
C)  The effects will be equal 
D)  Not possible to determine without knowing the multiplier

Question 11

President Clinton, at the beginning of his administration, increased personal income taxes on individuals with relatively high incomes. How will this change the consumption schedule?

Accepted Answer

A)  It will shift and become steeper. 
B)  It will shift and become flatter. 
C)  It will shift in a parallel manner. 
D)  It will remain fixed as the economy moves along the schedule. 
A)  It will shift and become steeper. 
B)  It will shift and become flatter. 
C)  It will shift in a parallel manner. 
D)  It will remain fixed as the economy moves along the schedule.

Question 12

Government transfer payments act as automatic stabilizers because as labor income decreases, transfer payments

Accepted Answer

A)  decrease as well. 
B)  remain constant. 
C)  increase. 
D)  to the government increase. 
A)  decrease as well. 
B)  remain constant. 
C)  increase. 
D)  to the government increase.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Income tax acts as a shock absorber because

Accepted Answer

A)  it makes disposable income, and thus consumer spending, less sensitive to fluctuations in GDP. 
B)  it makes disposable income, and thus consumer spending, more sensitive to fluctuations in GDP. 
C)  it makes disposable income, and thus consumer spending, independent of fluctuations in GDP. 
D)  none of these. 
A)  it makes disposable income, and thus consumer spending, less sensitive to fluctuations in GDP. 
B)  it makes disposable income, and thus consumer spending, more sensitive to fluctuations in GDP. 
C)  it makes disposable income, and thus consumer spending, independent of fluctuations in GDP. 
D)  none of these.

Question 15

"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 16

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 17

In the short run, tax cuts that are intended to increase aggregate supply have

Accepted Answer

A)  almost no effect on aggregate demand, and a small effect on aggregate supply. 
B)  about an equal effect on both aggregate demand and aggregate supply. 
C)  a much greater effect on aggregate demand than on aggregate supply. 
D)  almost no effect on aggregate supply, and a negative effect on aggregate demand. 
A)  almost no effect on aggregate demand, and a small effect on aggregate supply. 
B)  about an equal effect on both aggregate demand and aggregate supply. 
C)  a much greater effect on aggregate demand than on aggregate supply. 
D)  almost no effect on aggregate supply, and a negative effect on aggregate demand.

Question 18

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 19

Do policy makers know the level of unemployment that is associated with "full employment"?

Accepted Answer

A)  Yes, economists have the precise level of unemployment that is full employment. 
B)  Yes, although there is a small range of uncertainty in this measure. 
C)  No, economists have no idea what this level of unemployment is. 
D)  No, this number is not known with complete accuracy. 
A)  Yes, economists have the precise level of unemployment that is full employment. 
B)  Yes, although there is a small range of uncertainty in this measure. 
C)  No, economists have no idea what this level of unemployment is. 
D)  No, this number is not known with complete accuracy.

Question 20

How does an increase in taxes 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.

Exam 27: Managing Aggregate Demand: Fiscal Policy

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?

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

Marginal propensity to consume (MPC) is the fraction of extra income that a household spends on consumption.

Fiscal policy is the use of taxes and spending by the government to affect aggregate demand.

Table 11-1 Refer to Table 11-1. What is the level of consumption in this model?

Government can raise GDP by $1,000 billion by

Supply-side tax cuts are more likely to have the intended beneficial effect on

The macroeconomic policy planner's job is made difficult because of

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

Congress is debating whether to raise taxes by $100 billion or decrease spending by $100 billion in order to eliminate a budget deficit. Which action will have the larger effect on equilibrium GDP?

President Clinton, at the beginning of his administration, increased personal income taxes on individuals with relatively high incomes. How will this change the consumption schedule?

Government transfer payments act as automatic stabilizers because as labor income decreases, transfer payments

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

Income tax acts as a shock absorber because

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

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

In the short run, tax cuts that are intended to increase aggregate supply have

A "liberal" would most likely argue in favor of

Do policy makers know the level of unemployment that is associated with "full employment"?

How does an increase in taxes affect the expenditure schedule?

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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