Question 1

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. B

Question 2

Liberals tend to favor increasing taxes as the method of counteracting inflation.

Accepted Answer

A) True 
 B)False  True

Question 3

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 higher fraction of their incomes than lower- and middle-income households.That is,high-income households have a lower MPC.This means that they have a lower multiplier.When the government reduces taxes for all Americans,high-income households save a higher portion of their tax cut than do low- and middle-income households.For a tax cut to affect GDP,households have to spend the tax cut on goods and services.If households save most of the tax cut,then GDP will not increase by as much.However,if the tax cut were targeted toward households that spend most of their income,the effects on GDP would be larger.

Question 4

Supply-side policy is based on the assumption that people's economic behavior is not affected by taxes.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 7

One of the objectives of supply-side policies is to

Accepted Answer

A)  focus attention on the trade-off between inflation and unemployment. 
B)  sharpen the trade-off between inflation and unemployment. 
C)  eliminate the trade-off between inflation and unemployment. 
D)  convince the public of the trade-off between inflation and unemployment. 
A)  focus attention on the trade-off between inflation and unemployment. 
B)  sharpen the trade-off between inflation and unemployment. 
C)  eliminate the trade-off between inflation and unemployment. 
D)  convince the public of the trade-off between inflation and unemployment.

Question 8

During the period from 2001 to 2006,there were several major cuts in personal income tax rates.What effect did these have on the value of the multiplier?

Accepted Answer

A)  They decreased the value of the multiplier. 
B)  They had no effect on the multiplier. 
C)  They increased the value of the multiplier. 
D)  The effect was uncertain. 
A)  They decreased the value of the multiplier. 
B)  They had no effect on the multiplier. 
C)  They increased the value of the multiplier. 
D)  The effect was uncertain.

Question 9

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

Accepted Answer

A) 92.5 
B) 72.5 
C) 62.5 
D) 52.5 
E) 42.5 
A) 92.5 
B) 72.5 
C) 62.5 
D) 52.5 
E) 42.5

Question 10

The president wishes to increase spending for education by $4 billion but also maintain a balanced budget.Therefore,taxes will also be increased by $4 billion.What will happen to GDP?

Accepted Answer

A)  It will increase. 
B)  It will remain the same. 
C)  It will decrease. 
D)  It's impossible to know without the multiplier. 
A)  It will increase. 
B)  It will remain the same. 
C)  It will decrease. 
D)  It's impossible to know without the multiplier.

Question 11

The fiscal policy planner's job is made easier because full-employment GDP can be accurately measured.

Accepted Answer

A) True 
 B)False

Question 12

Figure 11-1
  
-In Figure 11-1,to achieve equilibrium at potential GDP the government could

Accepted Answer

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

Question 13

Supply-side tax cuts designed to increase investment spending are attractive in theory,but in practice

Accepted Answer

A)  the effect is the opposite of what theory suggests. 
B)  are less useful, because they take a long time to increase the capital stock. 
C)  they have no effect on the capital stock in the short or long run. 
D)  are powerful in the short run as capital stock rapidly increases, but the effect tapers off in the long run. 
A)  the effect is the opposite of what theory suggests. 
B)  are less useful, because they take a long time to increase the capital stock. 
C)  they have no effect on the capital stock in the short or long run. 
D)  are powerful in the short run as capital stock rapidly increases, but the effect tapers off in the long run.

Question 14

Most of the taxes collected by governments tend to

Accepted Answer

A)  remain fixed. 
B)  move in the opposite direction from GDP. 
C)  be sales taxes. 
D)  rise and fall with the level of GDP. 
A)  remain fixed. 
B)  move in the opposite direction from GDP. 
C)  be sales taxes. 
D)  rise and fall with the level of GDP.

Question 15

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

Accepted Answer

A)  1,000 
B)  950 
C) 945.5 
D) 937.5 
E) 437.5 
A)  1,000 
B)  950 
C) 945.5 
D) 937.5 
E) 437.5

Question 16

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 17

How does a tax cut 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.

Question 18

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 19

Figure 11-3
  
-In Figure 11-3,which line represents the change in the consumption schedule caused by a cut in fixed taxes?

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 20

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.

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?

Liberals tend to favor increasing taxes as the method of counteracting inflation.

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.

Supply-side policy is based on the assumption that people's economic behavior is not affected by taxes.

To eliminate an inflationary gap,the expenditure schedule should

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

One of the objectives of supply-side policies is to

During the period from 2001 to 2006,there were several major cuts in personal income tax rates.What effect did these have on the value of the multiplier?

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

The president wishes to increase spending for education by $4 billion but also maintain a balanced budget.Therefore,taxes will also be increased by $4 billion.What will happen to GDP?

The fiscal policy planner's job is made easier because full-employment GDP can be accurately measured.

Figure 11-1 -In Figure 11-1,to achieve equilibrium at potential GDP the government could

Supply-side tax cuts designed to increase investment spending are attractive in theory,but in practice

Most of the taxes collected by governments tend to

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

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

How does a tax cut affect the expenditure schedule?

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?

Figure 11-3 -In Figure 11-3,which line represents the change in the consumption schedule caused by a cut in fixed taxes?

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

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Exam 11: Managing Aggregate Demand: Fiscal Policy

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?

Liberals tend to favor increasing taxes as the method of counteracting inflation.

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.

Supply-side policy is based on the assumption that people's economic behavior is not affected by taxes.

To eliminate an inflationary gap,the expenditure schedule should

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

One of the objectives of supply-side policies is to

During the period from 2001 to 2006,there were several major cuts in personal income tax rates.What effect did these have on the value of the multiplier?

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

The president wishes to increase spending for education by $4 billion but also maintain a balanced budget.Therefore,taxes will also be increased by $4 billion.What will happen to GDP?

The fiscal policy planner's job is made easier because full-employment GDP can be accurately measured.

Figure 11-1 -In Figure 11-1,to achieve equilibrium at potential GDP the government could

Supply-side tax cuts designed to increase investment spending are attractive in theory,but in practice

Most of the taxes collected by governments tend to

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

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

How does a tax cut affect the expenditure schedule?

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?

Figure 11-3 -In Figure 11-3,which line represents the change in the consumption schedule caused by a cut in fixed taxes?

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

Filters