Question 1

Government transfer payments

Accepted Answer

A)  are subtracted from national income to obtain disposable income.
B)  can be considered as negative taxes.
C)  intervene between national product and disposable income in the same way as taxes.
D)  are counted the same as taxes in computing national income.

Question 2

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.

Question 3

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.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

A "conservative" would most likely argue in favor of

Accepted Answer

A)  tax increases when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary.
B)  tax cuts when fiscal restraint is necessary, and spending cuts when fiscal stimulus is necessary.
C)  tax cuts when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary.
D)  spending increases when fiscal expansion is necessary, and tax increases when fiscal stimulus is necessary.

Question 6

Ronald Reagan's presidency could be characterized as a period of

Accepted Answer

A)  passive monetary policy.
B)  passive fiscal policy.
C)  active fiscal policy.
D)  active regulatory policy.

Question 7

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.

Question 8

Tax cuts associated with supply-side economics often lead to increased

Accepted Answer

A)  federal budget surpluses.
B)  federal budget deficits.
C)  foreign trade surpluses.
D)  government spending.

Question 9

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.

Question 10

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.

Question 11

Productivity increases, brought about by increased education and training, may shift the aggregate supply curve outward.

Accepted Answer

A) True 
 B)False

Question 12

____ is the income actually available to the consumers that determines aggregate demand.

Accepted Answer

A)  Nominal income
B)  Net domestic product
C)  Income corrected for depreciation
D)  Disposable income

Question 13

Most tax payments increase as GDP increases.

Accepted Answer

A) True 
 B)False

Question 14

Figure 11-1
​ 
-In Figure 11-1, the economy is experiencing a(n)

Accepted Answer

A)  inflationary gap equal to EF.
B)  inflationary gap equal to ET.
C)  recessionary gap equal to ET.
D)  recessionary gap equal to FT.

Question 15

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.

Question 16

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.

Question 17

The main idea behind supply-side tax cuts is that

Accepted Answer

A)  tax cuts increase spending, which increases aggregate supply.
B)  some tax cuts can increase aggregate supply.
C)  people like lower taxes and will spend more if they get them.
D)  it is easier to shift aggregate supply than aggregate demand.

Question 18

According to Keynesian theory, a decrease in government expenditures would be a proper fiscal policy during

Accepted Answer

A)  an inflationary gap.
B)  a recessionary gap.
C)  a natural disaster.
D)  none of these.

Question 19

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.

Question 20

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.

Exam 27: Managing Aggregate Demand: Fiscal Policy

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

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Productivity increases, brought about by increased education and training, may shift the aggregate supply curve outward.

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____ is the income actually available to the consumers that determines aggregate demand.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 11-1 ​ -In Figure 11-1, the economy is experiencing a(n)

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The main idea behind supply-side tax cuts is that

Correct AnswerverifiedShow Answer

Tax cuts associated with supply-side economics often lead to increased

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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?

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Government transfer payments

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

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Capital gains tax cuts inevitably benefit

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Ronald Reagan's presidency could be characterized as a period of

Correct AnswerverifiedShow Answer

For liberals, the United States has a(n)

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

How does a tax cut affect the expenditure schedule?

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Most tax payments increase as GDP increases.

Correct AnswerverifiedShow Answer

A "conservative" would most likely argue in favor of

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According to Keynesian theory, a decrease in government expenditures would be a proper fiscal policy during

Correct AnswerverifiedShow Answer

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Figure 11-1 -In Figure 11-1, the economy is experiencing a(n)

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