• Question 2

Which of the following is not a reason supply-side tax policy may result in 'trickle down' economics?

Selected Answer:	Savings from tax cuts are spent on consumer goods.
Answers:	Savings from tax cuts are spent on consumer goods.
	Savings from tax cuts are invested in real estate, not business investment.
	Savings from tax cuts result in more business investment and employment.
	Savings from tax cuts are used to build factories outside of the U.S.

• Question 3

Which of the following best describes "slack"?

Selected Answer:	The unemployment rate is low and capacity utilization is high.
Answers:	The unemployment rate is low and capacity utilization is low.
	The unemployment rate is high and capacity utilization is high.
	The unemployment rate is high and capacity utilization is low.
	The unemployment rate is low and capacity utilization is high.

• Question 4

Which of the following cannot be thought of as a New Deal policy intended to stimulate the economy through the demand-side?

Selected Answer:	The creation of Social Security.
Answers:	The Labor Peace Act.
	The Fair Labor Standards Act which established the minimum wage and time-and-a-half.
	The Civilian Conservation Corps (CCC) and the Works Project Administration (WPA).
	The creation of Social Security.

• Question 5

According to supply-side theory, periods of high inflation due to increased aggregate demand are corrected by which of the following?

Selected Answer:	A reduction in wages and an increase in unemployment.
Answers:	An increase in wages and a reduction in production and employment.
	An increase in production and employment.
	A reduction in wages and an increase in unemployment.
	A decrease in aggregate demand and an increase in aggregate supply.

• Question 7

Which of the following best describes the 'paradox of thrift'?

Selected Answer:	As the rate of savings increases, so does the level of GDP.
Answers:	Supply creates its own demand.
	Demand creates its own supply.
	As the rate of savings increases, so does the level of GDP.
	If everyone tries to save more, not everyone will be able to save.

• Question 13

Which of the following best illustrates the intended effect of supply-side economic policy?

Selected Answer:	If tax cuts to the wealthy are not productively invested, the benefits will trickle down to the lower income classes.
Answers:	If tax savings are spent on consumption, the economy will grow.
	If tax savings are productively invested, GDP and employment will increase.
	If tax cuts to the wealthy are not productively invested, the benefits will trickle down to the lower income classes.
	Tax savings should be invested in other countries.

• Question 14

Which of the following is not a tax change recommended by supply-siders policy makers?

Selected Answer:	Reduced capital gains taxes.
Answers:	Reduced taxes for corporations.
	Reduced capital gains taxes.
	A consumption tax.
	Reduced taxes for low-income households.

• Question 15

According to demand-side economics, wages are sticky, or inflexible downward, for all of the following reasons except:

Selected Answer:	Workers do not usually compete for jobs on the basis of lower wages.
Answers:	When the unemployment rises above 6%, wages must fall.
	Contracts and the minimum wages prevent wages from falling.
	Workers do not usually compete for jobs on the basis of lower wages.
	The unemployed would rather face a spell without work rather than accept lower wages.