Question 1

Suppose a tax cut affected aggregate demand and aggregate supply.The shift in aggregate supply would make the

Accepted Answer

A tax cut can increase aggregate demand, leading to higher real GDP and price levels. If it also shifts aggregate supply, it can mitigate the price level increase while boosting real GDP more than if only demand shifted.

Question 2

Which of the following would those in favor of increasing government spending rather than decreasing taxes to prop up aggregate demand probably not agree with?

Accepted Answer

Those in favor of increasing government spending rather than decreasing taxes would not agree with option D, which suggests that tax cuts immediately and fully add to aggregate demand. This perspective contradicts the notion that increases in government spending are a more effective tool to boost aggregate demand than decreases in taxes.

Question 3

Which of the following can tax cuts influence?

Accepted Answer

Tax cuts can influence both aggregate demand and aggregate supply. By increasing disposable income, tax cuts can stimulate consumption and investment, which in turn increase aggregate demand. Additionally, tax cuts can incentivize firms to increase production and investment, which can increase aggregate supply.

Question 4

According to traditional Keynesian analysis,if the economy is in a recession,the government can move it back towards full employment by

Accepted Answer

According to traditional Keynesian analysis, during a recession, the government can use expansionary fiscal policy by cutting taxes and increasing government spending. These measures will increase aggregate demand and shift the economy towards full employment. However, the effect of tax cuts will be smaller than the effect of government spending because households might save some of the extra disposable income from the tax cut, while government spending goes directly into the economy. Therefore, the best choice is B, which states that the government should cut taxes and increase expenditures, but the effect of the tax cut is smaller.

Question 5

An increase in the money supply

Accepted Answer

An increase in the money supply leads to lower interest rates as the supply of money becomes greater than the demand for money. Lower interest rates make borrowing cheaper, leading to an increase in consumption and investment, which ultimately results in an increase in aggregate demand. Therefore, an increase in the money supply shifts aggregate demand to the right.

Question 6

Which of the following is correct?

Accepted Answer

Well designed tax cuts can increase investment, but investment tends to fluctuate more than consumption over the business cycle. Therefore, option A is correct.

Question 7

Which of the following is not a valid point in debating the merits of increasing government expenditures or cutting taxes during a recession?

Accepted Answer

Option D is not a valid point in debating the merits of increasing government expenditures or cutting taxes during a recession because it presents a factually incorrect statement. There is evidence that tax cuts have led to increases in economic growth in some cases.

Question 8

Suppose a tax cut affects aggregate demand and aggregate supply.Which of the shifts raise the price level?

Accepted Answer

A shift in aggregate demand to the right increases the price level, while a shift in aggregate supply to the right typically decreases the price level.

Question 9

In which cases were tax cuts followed by robust growth?

Accepted Answer

The tax cuts implemented by the Kennedy administration in 1964 and the Reagan administration in 1981 were followed by robust economic growth, as evidenced by increased employment rates, GDP growth, and reductions in inflation. Other tax cuts in history have had mixed results, but these two examples specifically saw significant economic growth following the implementation of tax cuts.

Question 10

Stimulus spending in 2009 was used for

Accepted Answer

The 2009 stimulus package, known as the American Recovery and Reinvestment Act, allocated funds for all of the options listed. It included funding for infrastructure projects like building roads and bridges, provided aid to local and state governments to prevent layoffs and fund essential services, and also included payments to the unemployed in the form of extended unemployment benefits and job training programs.

Question 11

Which of the following can tax cuts influence?

Accepted Answer

Tax cuts can influence all of the above factors. By providing individuals and businesses with more disposable income, tax cuts can increase consumption and investment spending, leading to an increase in aggregate demand. Additionally, tax cuts can also increase the incentives for businesses to expand and invest in new capital, leading to an increase in aggregate supply.

Question 12

Which of the following is true of stimulus policy enacted in 2009?

Accepted Answer

The statement tells us that we cannot be sure if the stimulus policy reduced the severity of the recession. However, we do know that the recession was less severe than the Great Depression, which means that the policy might have helped in some way. Option A is incorrect because it assumes that the severity of the recession was directly comparable to the Great Depression. Option B is incorrect because it makes a contradictory statement by claiming that the policy reduced the severity of the recession even though it was worse than the Great Depression. Option D is incorrect because it assumes that the policy was ineffective based solely on the severity of the recession compared to the Great Depression.

Question 13

Which of the following is correct? Investment tax credits

Accepted Answer

Investment is a key factor in ending a recession, and investment tax credits can incentivize businesses to increase their investments, leading to economic growth and recovery.

Question 14

Suppose a tax cut affects aggregate demand and aggregate supply.Which of the shifts raise real GDP?

Accepted Answer

Both the shift of aggregate demand and the shift of aggregate supply can raise real GDP. An increase in aggregate demand causes an increase in both output and prices. However, an increase in aggregate supply increases output and decreases prices. When both shifts happen together, output will increase while the effect on prices will be ambiguous. Thus, option A is the best answer.

Question 15

According to computer estimates using a traditional macroeconomic model,the Obama administration found that the multiplier for tax cuts and government expenditures were respectively

Accepted Answer

The multiplier for tax cuts is less than 1, while the multiplier for government expenditures is greater than 1. This is because tax cuts reduce government revenue, which can lead to a decrease in aggregate demand. On the other hand, government expenditures increase aggregate demand directly.

Quiz 23: Six Debates Over Macroeconomic Policy: Should the Government Fight Recessions With Spending Hikes Rather Than Tax Cuts

Suppose a tax cut affected aggregate demand and aggregate supply.The shift in aggregate supply would make the

Which of the following would those in favor of increasing government spending rather than decreasing taxes to prop up aggregate demand probably not agree with?

Which of the following can tax cuts influence?

According to traditional Keynesian analysis,if the economy is in a recession,the government can move it back towards full employment by

An increase in the money supply

Which of the following is correct?

Which of the following is not a valid point in debating the merits of increasing government expenditures or cutting taxes during a recession?

Suppose a tax cut affects aggregate demand and aggregate supply.Which of the shifts raise the price level?

In which cases were tax cuts followed by robust growth?

Stimulus spending in 2009 was used for

Which of the following can tax cuts influence?

Which of the following is true of stimulus policy enacted in 2009?

Which of the following is correct? Investment tax credits

Suppose a tax cut affects aggregate demand and aggregate supply.Which of the shifts raise real GDP?

According to computer estimates using a traditional macroeconomic model,the Obama administration found that the multiplier for tax cuts and government expenditures were respectively