Question 1

The primary goal of supply-side economics is to

Accepted Answer

A)  balance the federal budget. 
B)  reduce the balance of payments deficit. 
C)  reduce the money supply. 
D)  reduce inflation and increase growth at the same time. 
A)  balance the federal budget. 
B)  reduce the balance of payments deficit. 
C)  reduce the money supply. 
D)  reduce inflation and increase growth at the same time.

Question 2

In an effort to balance the budget, the government cuts spending rather than increasing taxes. What will happen to the consumption schedule?

Accepted Answer

A)  It will become steeper. 
B)  It will become flatter. 
C)  It will shift upward. 
D)  It will shift downward. 
E)  It will remain the same and move along it. 
A)  It will become steeper. 
B)  It will become flatter. 
C)  It will shift upward. 
D)  It will shift downward. 
E)  It will remain the same and move along it.

Question 3

If Congress votes to increase government purchases and at the same time decreases personal income taxes, they

Accepted Answer

A)  have decided to balance the federal budget. 
B)  have voted for the proper policy to counteract a recessionary gap. 
C)  have voted for the proper policy to counteract an inflationary gap. 
D)  are trying to achieve a federal budget surplus. 
A)  have decided to balance the federal budget. 
B)  have voted for the proper policy to counteract a recessionary gap. 
C)  have voted for the proper policy to counteract an inflationary gap. 
D)  are trying to achieve a federal budget surplus.

Question 4

A proponent of supply-side economics would advocate

Accepted Answer

A)  increasing income taxes on saving. 
B)  reducing corporate income tax. 
C)  increasing capital gains tax. 
D)  increasing personal income tax. 
A)  increasing income taxes on saving. 
B)  reducing corporate income tax. 
C)  increasing capital gains tax. 
D)  increasing personal income tax.

Question 5

Decreasing aggregate demand to eliminate an inflationary gap often creates the problem of

Accepted Answer

A)  unemployment. 
B)  increasing real GDP. 
C)  increasing inflation. 
D)  increasing the labor force. 
A)  unemployment. 
B)  increasing real GDP. 
C)  increasing inflation. 
D)  increasing the labor force.

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

How does an increase in government transfer payments affect aggregate demand?

Accepted Answer

A)  It has the same effect as a tax increase, which lowers AD with a larger multiplier than a spending decrease. 
B)  It has the same effect as a tax cut, which increases AD but with a smaller multiplier than a change in spending. 
C)  It has the same effect as a spending increase, which increases AD with a larger multiplier than a tax cut. 
D)  It has the same effect as a spending decrease, which increases AD with a larger multiplier than a spending decrease. 
A)  It has the same effect as a tax increase, which lowers AD with a larger multiplier than a spending decrease. 
B)  It has the same effect as a tax cut, which increases AD but with a smaller multiplier than a change in spending. 
C)  It has the same effect as a spending increase, which increases AD with a larger multiplier than a tax cut. 
D)  It has the same effect as a spending decrease, which increases AD with a larger multiplier than a spending decrease.

Question 8

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 9

Tax and spending policies affect aggregate demand only after some time elapses. Due to these time lags, fiscal policies end up getting based on

Accepted Answer

A)  forecasts on the future state of the economy that are often inaccurate. 
B)  forecasts on the present state of the economy that are often inaccurate. 
C)  forecasts on the present state of the economy that are often accurate. 
D)  all of these. 
A)  forecasts on the future state of the economy that are often inaccurate. 
B)  forecasts on the present state of the economy that are often inaccurate. 
C)  forecasts on the present state of the economy that are often accurate. 
D)  all of these.

Question 10

Most tax payments increase as GDP increases.

Accepted Answer

A) True 
 B)False

Question 11

If the MPC in the United States was high, it would increase the value of the multiplier.

Accepted Answer

A) True 
 B)False

Question 12

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 13

As a result of the recent financial crisis, some analysts believed that the MPC in the U.S. declined. If this is true, the value of the multiplier is now

Accepted Answer

A)  smaller. 
B)  larger. 
C)  the same. 
D)  magnified to a larger amount. 
A)  smaller. 
B)  larger. 
C)  the same. 
D)  magnified to a larger amount.

Question 14

Capital gains tax cuts inevitably benefit

Accepted Answer

A)  low-income workers. 
B)  retired persons. 
C)  workers in large cities. 
D)  high-income stock owners. 
A)  low-income workers. 
B)  retired persons. 
C)  workers in large cities. 
D)  high-income stock owners.

Question 15

Which of the following is a correct conclusion regarding the successful implementation of fiscal policy?

Accepted Answer

A)  Successful fiscal policy would be easy to achieve if Congress would stay out of the economy and permit natural market forces to restore full-employment equilibrium. 
B)  Successful fiscal policy is difficult to achieve because in the real world, the investment, net exports, and consumption schedules are constantly shifting. 
C)  Successful fiscal policy is much easier to achieve today because econometric models make economic forecasting much easier. 
D)  As the income-expenditure model suggests, fiscal policy planners can move GDP to any level they please by changing tax and spending levels. 
A)  Successful fiscal policy would be easy to achieve if Congress would stay out of the economy and permit natural market forces to restore full-employment equilibrium. 
B)  Successful fiscal policy is difficult to achieve because in the real world, the investment, net exports, and consumption schedules are constantly shifting. 
C)  Successful fiscal policy is much easier to achieve today because econometric models make economic forecasting much easier. 
D)  As the income-expenditure model suggests, fiscal policy planners can move GDP to any level they please by changing tax and spending levels.

Question 16

Unemployment insurance is an example of

Accepted Answer

A)  automatic stabilizer. 
B)  recessionary gap. 
C)  tax 
D)  all of these. 
A)  automatic stabilizer. 
B)  recessionary gap. 
C)  tax 
D)  all of these.

Question 17

An increase in taxes will cause the consumption schedule to

Accepted Answer

A)  shift upward. 
B)  shift downward. 
C)  remain fixed as the economy moves upward along the schedule. 
D)  remain fixed as the economy moves downward along the schedule. 
A)  shift upward. 
B)  shift downward. 
C)  remain fixed as the economy moves upward along the schedule. 
D)  remain fixed as the economy moves downward along the schedule.

Question 18

For liberals, the United States has a(n)

Accepted Answer

A)  public sector that is too large. 
B)  private sector that is too small. 
C)  economy that is too heavily regulated. 
D)  public sector that is too small. 
A)  public sector that is too large. 
B)  private sector that is too small. 
C)  economy that is too heavily regulated. 
D)  public sector that is too small.

Question 19

If the federal government increases the amount of Social Security benefits for retired persons, then the

Accepted Answer

A)  consumption schedule will shift upward. 
B)  aggregate demand curve will shift outward. 
C)  effect on equilibrium GDP will be the same as a cut in taxes. 
D)  All of the above are correct. 
A)  consumption schedule will shift upward. 
B)  aggregate demand curve will shift outward. 
C)  effect on equilibrium GDP will be the same as a cut in taxes. 
D)  All of the above are correct.

Question 20

Which of the following conclusions about supply-side tax initiatives is accepted by most economists?

Accepted Answer

A)  Supply-side tax cuts are likely to benefit the poor as much as the rich. 
B)  Supply-side tax cuts will almost certainly lead to smaller budget deficits. 
C)  Such tax cuts probably will increase aggregate supply quickly, but an increase in aggregate demand will come later. 
D)  Tax reductions aimed at stimulating business investment are likely to have a greater impact than tax reductions aimed at getting people to work longer hours or save more. 
A)  Supply-side tax cuts are likely to benefit the poor as much as the rich. 
B)  Supply-side tax cuts will almost certainly lead to smaller budget deficits. 
C)  Such tax cuts probably will increase aggregate supply quickly, but an increase in aggregate demand will come later. 
D)  Tax reductions aimed at stimulating business investment are likely to have a greater impact than tax reductions aimed at getting people to work longer hours or save more.

Exam 27: Managing Aggregate Demand: Fiscal Policy

The primary goal of supply-side economics is to

In an effort to balance the budget, the government cuts spending rather than increasing taxes. What will happen to the consumption schedule?

If Congress votes to increase government purchases and at the same time decreases personal income taxes, they

A proponent of supply-side economics would advocate

Decreasing aggregate demand to eliminate an inflationary gap often creates the problem of

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

How does an increase in government transfer payments affect aggregate demand?

To eliminate an inflationary gap, the expenditure schedule should

Tax and spending policies affect aggregate demand only after some time elapses. Due to these time lags, fiscal policies end up getting based on

Most tax payments increase as GDP increases.

If the MPC in the United States was high, it would increase the value of the multiplier.

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

As a result of the recent financial crisis, some analysts believed that the MPC in the U.S. declined. If this is true, the value of the multiplier is now

Capital gains tax cuts inevitably benefit

Which of the following is a correct conclusion regarding the successful implementation of fiscal policy?

Unemployment insurance is an example of

An increase in taxes will cause the consumption schedule to

For liberals, the United States has a(n)

If the federal government increases the amount of Social Security benefits for retired persons, then the

Which of the following conclusions about supply-side tax initiatives is accepted by most economists?

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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