1. Which of the following statements is not correct?

a. An increase in government spending raises the equilibrium level of income by a multiple of the original spending increase.

b. Government spending is part of fiscal policy.

c. A decline in government spending brings about a contraction in the economy.

d. Government spending is a means to close a recessionary gap.

e. An increase in government spending shifts the AD curve downward by a fraction of the rise in government spending.

2. Which of the following was not a cause of the U.S. budget deficits in the 1980s?

a. Recessions in the early 1980s

b. A substantial increase in government spending

c. Expansion of existing government programs

d. A substantial decrease in tax rates

e. A relatively constant level of taxation

3. Which of the following does not qualify as an automatic stabilizer?

a. Proportional income taxes

b. Food stamps

c. Welfare payments

d. Progressive income taxes

e. Unemployment compensation

4. Income taxes affect aggregate demand

a. indirectly by changing consumption.

b. indirectly by changing investment spending.

c. indirectly by changing net exports.

d. directly by changing disposable income.

e. directly through government spending.

5. Which of the following constitutes a direct tax?

a. Personal income taxes

b. Sales taxes

c. Excise taxes

d. Trade tariffs

e. Value-added taxes