Question 1

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 2

In the determination of disposable income, transfer payments are treated as if they

Accepted Answer

A)  are the same as taxes. 
B)  did not exist. 
C)  are the opposite of taxes. 
D)  were a constant amount. 
A)  are the same as taxes. 
B)  did not exist. 
C)  are the opposite of taxes. 
D)  were a constant amount.

Question 3

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 4

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

Accepted Answer

A) True 
 B)False

Question 5

When you compare the effects of government spending on aggregate demand with the effects of taxes on aggregate demand, the effects of government spending are

Accepted Answer

A)  smaller. 
B)  larger. 
C)  the same. 
D)  impossible to predict. 
A)  smaller. 
B)  larger. 
C)  the same. 
D)  impossible to predict.

Question 6

In an effort to balance the federal budget, an increase in Social Security taxes is passed. What is the most likely effect of this on equilibrium GDP?

Accepted Answer

A)  GDP will increase. 
B)  GDP will decrease. 
C)  GDP will not change but prices will rise. 
D)  GDP will not change but employment will increase. 
A)  GDP will increase. 
B)  GDP will decrease. 
C)  GDP will not change but prices will rise. 
D)  GDP will not change but employment will increase.

Question 7

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 8

A tax reduction shifts the consumption schedule downward.

Accepted Answer

A) True 
 B)False

Question 9

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 10

According to supply-siders, tax cuts should increase aggregate supply.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A)  The expenditure schedule will shift upward. 
B)  The expenditure schedule will shift downward. 
C)  The expenditure schedule will become flatter. 
D)  The expenditure schedule will become steeper. 
A)  The expenditure schedule will shift upward. 
B)  The expenditure schedule will shift downward. 
C)  The expenditure schedule will become flatter. 
D)  The expenditure schedule will become steeper.

Question 12

Suppose the federal government is considering alternatives to increase the level of real GDP in order to reduce unemployment. It can only do one of the following. Which will have the smallest impact on the federal budget?

Accepted Answer

A)  Decreasing transfer payments 
B)  Increasing government spending 
C)  Increasing transfer payments 
D)  Decreasing government spending 
A)  Decreasing transfer payments 
B)  Increasing government spending 
C)  Increasing transfer payments 
D)  Decreasing government spending

Question 13

An active stabilization policy designed to limit the size of government would

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 14

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 15

If the marginal propensity to consume ( MPC) is 0.5, the value of the multiplier is

Accepted Answer

A)  4 
B)  3 
C)  2 
D)  5 
A)  4 
B)  3 
C)  2 
D)  5

Question 16

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 17

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

Reducing taxes on capital gains is an example of a supply-side tax cut.

Accepted Answer

A) True 
 B)False

Question 19

A budget deficit occurs when government expenditures are greater than tax revenues.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is one of the main features of our modern economy that helps ensure against a repeat performance of the Great Depression?

Accepted Answer

A)  Transfer payments 
B)  Outsourcing 
C)  Multiplier 
D)  Personal income tax 
A)  Transfer payments 
B)  Outsourcing 
C)  Multiplier 
D)  Personal income tax

Exam 27: Managing Aggregate Demand: Fiscal Policy

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

In the determination of disposable income, transfer payments are treated as if they

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

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

When you compare the effects of government spending on aggregate demand with the effects of taxes on aggregate demand, the effects of government spending are

In an effort to balance the federal budget, an increase in Social Security taxes is passed. What is the most likely effect of this on equilibrium GDP?

In 2009, President Obama and Congress stimulated aggregate demand by

A tax reduction shifts the consumption schedule downward.

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

According to supply-siders, tax cuts should increase aggregate supply.

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

Suppose the federal government is considering alternatives to increase the level of real GDP in order to reduce unemployment. It can only do one of the following. Which will have the smallest impact on the federal budget?

An active stabilization policy designed to limit the size of government would

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

If the marginal propensity to consume ( MPC) is 0.5, the value of the multiplier is

To close a recessionary gap, Keynesian theory calls for

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

Reducing taxes on capital gains is an example of a supply-side tax cut.

A budget deficit occurs when government expenditures are greater than tax revenues.

Which of the following is one of the main features of our modern economy that helps ensure against a repeat performance of the Great Depression?

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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