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"Fiscal Policy" is the federal government's plan for

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b. spending and taxes, designed to influence the level of aggregate demand.

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Historically, the government has used fiscal policy to affect the economy through

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c. aggregate demand

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Appropriate fiscal policy in the U.S. in 2009 would attempt to

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c. increase aggregate demand.

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In 2009, President Obama and Congress stimulated aggregate demand by

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d. decreasing taxes and increasing government spending.

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

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d. Disposable income

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

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c. Y=C+I+G+(X-IM)

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Taxes are the difference between

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d. GDP and disposable income

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Taxes reduce total spending

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d. indirectly by reducing disposable income

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The difference between a fixed tax and a variable tax is that

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c. a variable tax changes when GDP changes, but a fixed tax does not change with GDP.

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How does an increase in taxes affect the expenditure schedule?

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d. It causes the schedule to shift downward.

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Why does a tax change affect aggregate demand?

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d. A tax change alters disposable income and consumption spending.

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If personal income tax rates are decreased in an attempt to stimulate

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a. an increase in consumption and an increase in GDP.

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When we add a personal income tax to the macroeconomic model, the

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b. multiplier becomes smaller.

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If the value of the multiplier is smaller, the economy

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b. becomes more stable becasue automatic stabilizers have a larger impact.

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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?

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c. They increased the value of the multiplier.

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For any given change in taxes, the multiplier

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d. All of the above are correct. will work indirectly thorough consumption. effect will occur in two steps. effect will be smaller than for an equivalent dollar change in government spending.

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An automatic stabilizer is a feature of the economy that

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b. reduces its sensitivity to shocks

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Congress is debating whether to raise taxes by$ 100 billion or decrease spending by $100 billion in order to eliminate a budget deficit. Which action will have the largest effect on equilibrium GDP?

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b. the decrease in spending

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

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d. It will shift downward.

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Government transfer payments

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b. can be considered as negative taxes.

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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

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c. increase government purchases, decreased taxes, and an increase in transfer payments.

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Expansionary fiscal policy can cause a rise in real GDP in combination with

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a. an increase in the price level.

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In Figure above, the economy is experiencing a(n)

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c. recessionary gap equal to ET.

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In Figure above, the slope of the expenditures schedule is .75 and the government wishes to achieve full employment . It should

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d. increase spending by 250.

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In Figure above, to reach the level of potential GDP, the administration of President Obama would mostly likely advocate

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a. increase Social Security payments

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In Figure above, to achieve equilibrium at potential GDP the government could

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c. increase government purchases.

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Assume that the government is considering different policies to increase total expenditures in order to reduce unemployment. Which of the following would achieve this objective?

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d. All of the above are correct. decrease taxes increasing government spending increasing transfer payments

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In 2000, many economists believed that the most serious macroeconomic problem confronting the U.S. economy was an inflationary gap. Which policies would be effective in dealing with this problem?

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d. Increase personal income taxes

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To eliminate an inflationary gap, the expenditure schedule should

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b. shift downward.

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To eliminate an inflationary gap, the aggregate demand curve should

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d. shift inward.

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When total expenditures exceed the economy's potential GDP, the proper fiscal policy is to

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c. decrease government purchases.

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Contractionary fiscal policy may have some undesirable consequences. Among these is

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a. higher unemployment

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Which of the following will shift the aggregate demand curve outward?

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tax cuts and government spending increases

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One of the practical issues in the choice of government spending or taxes to change aggregate demand is how large a

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d. government sector we want.

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A fiscal policy that reduces taxes or increases government spending will cause a(n)

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b. increase in real GDP and an increase in the price level.

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A "conservative" would most likely argue in favor of

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c. tax cuts when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary.

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A "liberal" would most likely argue in favor of

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d. spending increases when fiscal expansion is necessary, and tax increases when fiscal restraint is necessary.

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

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d. constantly changing investment and net exports becaue of other events.

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

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a. unemployment

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The central idea of supply-side tax cuts is that certain types of tax cuts will increase

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b. aggregate supply

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A proponent of supply-side economics would advocate

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a. reducing income taxes on saving.

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The primary goal of supply-side economics is to

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d. reduce inflation and increase growth at the same time.

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The main idea behind supply-side tax cuts is that

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b. some tax cuts can increase aggregate supply.

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

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d. are larger than supply-side changes.

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If the demand-side effects of supply-side tax cuts are greater than the supply-side effects, then we can expect the result to be a(n)

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c. increase in output and prices.

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

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b. federal budget deficits.

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Supply-side tax cuts are more likely to have the intended beneficial effect on

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c. investment spending.

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In the short run, tax cuts that are intended to increase aggregate supply have

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c. a much greater effect on aggregate demand that on aggregate supply.

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