Question 1

Figure 11-1
 
In Figure 11-1, the slope of the expenditures schedule is 0.75, and the government wishes to achieve full employment. It should

Accepted Answer

A)  cut spending by 1,000. 
B)  increase spending by 1,000. 
C)  cut taxes by 1,000. 
D)  increase spending by 250. 
E)  cut taxes by 250. 
A)  cut spending by 1,000. 
B)  increase spending by 1,000. 
C)  cut taxes by 1,000. 
D)  increase spending by 250. 
E)  cut taxes by 250.

Question 2

If personal income taxes are increased, disposable income and consumption

Accepted Answer

A)  increase. 
B)  stay the same. 
C)  decrease. 
D)  change in an unpredictable direction. 
A)  increase. 
B)  stay the same. 
C)  decrease. 
D)  change in an unpredictable direction.

Question 3

You are a member of Congress in 2007-2009 when the economy is in a recessionary gap. If your goal is to achieve full employment, you should vote for

Accepted Answer

A)  decreased government purchases, increased taxes, and a cut in transfer payments. 
B)  a balanced federal budget. 
C)  increased government purchases, decreased taxes, and an increase in transfer payments. 
D)  increased government purchases and transfer payments, and an equal increase in taxes. 
A)  decreased government purchases, increased taxes, and a cut in transfer payments. 
B)  a balanced federal budget. 
C)  increased government purchases, decreased taxes, and an increase in transfer payments. 
D)  increased government purchases and transfer payments, and an equal increase in taxes.

Question 4

A major complication with fiscal policy to control aggregate demand is the

Accepted Answer

A)  inability to agree on macroeconomic goals. 
B)  accuracy of modern forecasting models. 
C)  inability to change aggregate demand with fiscal tools. 
D)  constantly changing investment and net exports because of other events. 
A)  inability to agree on macroeconomic goals. 
B)  accuracy of modern forecasting models. 
C)  inability to change aggregate demand with fiscal tools. 
D)  constantly changing investment and net exports because of other events.

Question 5

Supply-siders ignore the effects of tax cuts on

Accepted Answer

A)  aggregate demand. 
B)  aggregate supply. 
C)  aggregate demand and aggregate supply. 
D)  none of these. 
A)  aggregate demand. 
B)  aggregate supply. 
C)  aggregate demand and aggregate supply. 
D)  none of these.

Question 6

If the federal government wishes to move the economy out of a recessionary gap, the appropriate fiscal policy is a(n)

Accepted Answer

A)  increase in taxes. 
B)  decrease in government purchases. 
C)  decrease in transfer payments. 
D)  None of the above is correct. 
A)  increase in taxes. 
B)  decrease in government purchases. 
C)  decrease in transfer payments. 
D)  None of the above is correct.

Question 7

Figure 11-3
 
In Figure 11-3, which line represents the change in the consumption schedule caused by a cut in the personal income tax as advocated by President George W. Bush in 2001?

Accepted Answer

A)  C1 in graph (a) 
B)  C2 in graph (a) 
C)  C1 in graph (b) 
D)  C2 in graph (b) 
A)  C1 in graph (a) 
B)  C2 in graph (a) 
C)  C1 in graph (b) 
D)  C2 in graph (b)

Question 8

When an investor sells an asset for a profit, then that profit is called a capital gain.

Accepted Answer

A) True 
 B)False

Question 9

An increase in government expenditures is an example of expansionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 10

Conservatives usually favor increasing government spending to increase aggregate demand.

Accepted Answer

A) True 
 B)False

Question 11

The multiplier for changes in taxes is smaller than the multiplier for changes in government purchases because not every dollar of tax cut is spent.

Accepted Answer

A) True 
 B)False

Question 12

If a "conservative" wanted to increase aggregate demand, which of the following would he or she tend to favor?

Accepted Answer

A)  An increase in government spending, because it has a larger multiplier than tax changes. 
B)  A decrease in transfer payments, because it keeps the public sector small. 
C)  An increase in transfer payments, because it has a larger multiplier than tax changes. 
D)  A decrease in taxes, because it makes the public sector smaller. 
A)  An increase in government spending, because it has a larger multiplier than tax changes. 
B)  A decrease in transfer payments, because it keeps the public sector small. 
C)  An increase in transfer payments, because it has a larger multiplier than tax changes. 
D)  A decrease in taxes, because it makes the public sector smaller.

Question 13

How will a cut in a fixed tax affect 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 14

With regard to GDP, residential property taxes are an example of ____ taxes.

Accepted Answer

A)  variable 
B)  sales 
C)  fixed 
D)  disposable 
A)  variable 
B)  sales 
C)  fixed 
D)  disposable

Question 15

Reductions in the personal income tax, often advocated by supply-siders to increase labor supply and effort, can be expected to also

Accepted Answer

A)  decrease consumption spending. 
B)  increase consumption spending. 
C)  decrease investment spending. 
D)  increase export sales. 
A)  decrease consumption spending. 
B)  increase consumption spending. 
C)  decrease investment spending. 
D)  increase export sales.

Question 16

Taxes, transfer payments, and government purchases are the components of automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 17

In macroeconomic analysis, a transfer payment is considered a

Accepted Answer

A)  positive tax. 
B)  fixed tax. 
C)  negative tax. 
D)  variable tax. 
A)  positive tax. 
B)  fixed tax. 
C)  negative tax. 
D)  variable tax.

Question 18

Figure 11-2
 
Which graph in Figure 11-2 best reflects a Keynesian view of the impact of a $500-per-person tax cut?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 19

Taxes constitute the difference between GDP and disposable income.

Accepted Answer

A) True 
 B)False

Question 20

Why did President Obama want to repeal the Bush era tax cuts on upper income taxpayers? How would the repeal of these tax cuts impact aggregate demand and to what degree? How did the economic conditions in 2010 make such a repeal less likely to take place?

Accepted Answer

President Obama wanted to repeal the Bus

Exam 27: Managing Aggregate Demand: Fiscal Policy

Figure 11-1 In Figure 11-1, the slope of the expenditures schedule is 0.75, and the government wishes to achieve full employment. It should

If personal income taxes are increased, disposable income and consumption

You are a member of Congress in 2007-2009 when the economy is in a recessionary gap. If your goal is to achieve full employment, you should vote for

A major complication with fiscal policy to control aggregate demand is the

Supply-siders ignore the effects of tax cuts on

If the federal government wishes to move the economy out of a recessionary gap, the appropriate fiscal policy is a(n)

Figure 11-3 In Figure 11-3, which line represents the change in the consumption schedule caused by a cut in the personal income tax as advocated by President George W. Bush in 2001?

When an investor sells an asset for a profit, then that profit is called a capital gain.

An increase in government expenditures is an example of expansionary fiscal policy.

Conservatives usually favor increasing government spending to increase aggregate demand.

The multiplier for changes in taxes is smaller than the multiplier for changes in government purchases because not every dollar of tax cut is spent.

If a "conservative" wanted to increase aggregate demand, which of the following would he or she tend to favor?

How will a cut in a fixed tax affect the consumption schedule?

With regard to GDP, residential property taxes are an example of ____ taxes.

Reductions in the personal income tax, often advocated by supply-siders to increase labor supply and effort, can be expected to also

Taxes, transfer payments, and government purchases are the components of automatic stabilizers.

In macroeconomic analysis, a transfer payment is considered a

Figure 11-2 Which graph in Figure 11-2 best reflects a Keynesian view of the impact of a $500-per-person tax cut?

Taxes constitute the difference between GDP and disposable income.

Why did President Obama want to repeal the Bush era tax cuts on upper income taxpayers? How would the repeal of these tax cuts impact aggregate demand and to what degree? How did the economic conditions in 2010 make such a repeal less likely to take place?

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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