Question 1

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 2

The hallmark of Clintonomics was first to reduce the budget deficit.

Accepted Answer

A) True 
 B)False

Question 3

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.

Question 4

Which of the following is not a method to reduce the inflationary gap?

Accepted Answer

A)  Increasing government spending 
B)  Reducing transfer payments 
C)  Raising taxes 
D)  Decreasing government expenditure 
A)  Increasing government spending 
B)  Reducing transfer payments 
C)  Raising taxes 
D)  Decreasing government expenditure

Question 5

There is some agreement between the beliefs of President George W. Bush in 2001 on the effectiveness of tax cuts with the beliefs of former President

Accepted Answer

A)  Keynes. 
B)  Clinton. 
C)  Reagan. 
D)  Carter. 
A)  Keynes. 
B)  Clinton. 
C)  Reagan. 
D)  Carter.

Question 6

How does the multiplier for a change in government spending compare to the multiplier for a change in taxes?

Accepted Answer

A)  It is smaller. 
B)  It is the same. 
C)  It is larger. 
D)  It cannot be calculated. 
A)  It is smaller. 
B)  It is the same. 
C)  It is larger. 
D)  It cannot be calculated.

Question 7

Which of the following observations is true?

Accepted Answer

A)  Tax changes have no impact on the consumption schedule. 
B)  Tax reduction shifts the consumption schedule upward. 
C)  Changes in taxes have a multiplier effect on equilibrium GDP on the supply-side. 
D)  Tax increases increase equilibrium GDP. 
A)  Tax changes have no impact on the consumption schedule. 
B)  Tax reduction shifts the consumption schedule upward. 
C)  Changes in taxes have a multiplier effect on equilibrium GDP on the supply-side. 
D)  Tax increases increase equilibrium GDP.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Compared to an economy's self-correcting mechanism, active contractionary fiscal policy will

Accepted Answer

A)  work more slowly and calmly. 
B)  work more quickly. 
C)  have less deflationary effects. 
D)  have a smaller effect on real GDP. 
A)  work more slowly and calmly. 
B)  work more quickly. 
C)  have less deflationary effects. 
D)  have a smaller effect on real GDP.

Question 10

What is the difference between tax cuts imposed on higher-income households compared with lower- and middle-income households? Discuss the implications for the multiplier and the effectiveness of the tax cuts for boosting GDP.

Accepted Answer

Higher-income households tend to save a

Question 11

Recessionary gaps can be cured by raising government expenditures.

Accepted Answer

A) True 
 B)False

Question 12

One objection to supply-side tax cuts is that demand-side changes

Accepted Answer

A)  are smaller than supply-side changes. 
B)  and supply-side changes are about equal. 
C)  are more unpredictable than supply-side changes. 
D)  are larger than supply-side changes. 
A)  are smaller than supply-side changes. 
B)  and supply-side changes are about equal. 
C)  are more unpredictable than supply-side changes. 
D)  are larger than supply-side changes.

Question 13

Explain how a "conservative" and a "liberal" might differ in the types of policies they advocate to counteract a recessionary gap.

Accepted Answer

Conservatives tend to want a smaller gov

Question 14

Taxes are the difference between

Accepted Answer

A)  GDP and net exports. 
B)  GDP and consumer spending. 
C)  consumer spending and saving. 
D)  GDP and disposable income. 
A)  GDP and net exports. 
B)  GDP and consumer spending. 
C)  consumer spending and saving. 
D)  GDP and disposable income.

Question 15

Supply-side tax cuts tend to benefit the rich because tax cuts

Accepted Answer

A)  on income tend to benefit high-income earners more than low-income earners. 
B)  on savings benefit high-income earners who do most of the personal saving. 
C)  for capital formation tend to benefit those with the means to accumulate capital. 
D)  on capital gains tend to benefit those with larger financial assets. 
E)  All of the above are correct. 
A)  on income tend to benefit high-income earners more than low-income earners. 
B)  on savings benefit high-income earners who do most of the personal saving. 
C)  for capital formation tend to benefit those with the means to accumulate capital. 
D)  on capital gains tend to benefit those with larger financial assets. 
E)  All of the above are correct.

Question 16

After September 11, 2001, President George W. Bush believed in the need for a fiscal stimulus. The proper fiscal policy to reflect this could include a(n)

Accepted Answer

A)  increase in taxes. 
B)  reduction in transfer payments. 
C)  increase in government purchases. 
D)  All of the above are correct. 
A)  increase in taxes. 
B)  reduction in transfer payments. 
C)  increase in government purchases. 
D)  All of the above are correct.

Question 17

At any given price level, equilibrium GDP on the expenditure side occurs when ____.

Accepted Answer

A)  Y = C + I + G − (X − IM) 
B)  Y = C + I - G 
C)  Y = C + I + G + (X − IM) 
D)  Y = C + X + G + (X − IM) 
A)  Y = C + I + G − (X − IM) 
B)  Y = C + I - G 
C)  Y = C + I + G + (X − IM) 
D)  Y = C + X + G + (X − IM)

Question 18

The personal income tax varies as GDP changes.

Accepted Answer

A) True 
 B)False

Question 19

Policy makers and citizens who want to expand the size of the government sector would favor stabilization policies that

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 20

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

Accepted Answer

A)  5,000 
B)  4,500 
C)  3,750 
D)  3,500 
E)  3,250 
A)  5,000 
B)  4,500 
C)  3,750 
D)  3,500 
E)  3,250

Exam 27: Managing Aggregate Demand: Fiscal Policy

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

The hallmark of Clintonomics was first to reduce the budget deficit.

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

Which of the following is not a method to reduce the inflationary gap?

There is some agreement between the beliefs of President George W. Bush in 2001 on the effectiveness of tax cuts with the beliefs of former President

How does the multiplier for a change in government spending compare to the multiplier for a change in taxes?

Which of the following observations is true?

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

Compared to an economy's self-correcting mechanism, active contractionary fiscal policy will

What is the difference between tax cuts imposed on higher-income households compared with lower- and middle-income households? Discuss the implications for the multiplier and the effectiveness of the tax cuts for boosting GDP.

Recessionary gaps can be cured by raising government expenditures.

One objection to supply-side tax cuts is that demand-side changes

Explain how a "conservative" and a "liberal" might differ in the types of policies they advocate to counteract a recessionary gap.

Taxes are the difference between

Supply-side tax cuts tend to benefit the rich because tax cuts

After September 11, 2001, President George W. Bush believed in the need for a fiscal stimulus. The proper fiscal policy to reflect this could include a(n)

At any given price level, equilibrium GDP on the expenditure side occurs when ____.

The personal income tax varies as GDP changes.

Policy makers and citizens who want to expand the size of the government sector would favor stabilization policies that

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

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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