Question 1

A progressive tax system implies that

Accepted Answer

A) the proportion of income paid to taxes rises as income increases and falls as income decreases. 
B) the proportion of income paid to taxes falls as income increases and rises as income decreases. 
C) the proportion of income paid to taxes rises as income increases and does not change as income decreases. 
D) the proportion of income paid to taxes decreases as income increases and does not change as income decreases. 
E) the proportion of income paid to taxes does not change as income increases and rises as income decreases. 
A) the proportion of income paid to taxes rises as income increases and falls as income decreases. 
B) the proportion of income paid to taxes falls as income increases and rises as income decreases. 
C) the proportion of income paid to taxes rises as income increases and does not change as income decreases. 
D) the proportion of income paid to taxes decreases as income increases and does not change as income decreases. 
E) the proportion of income paid to taxes does not change as income increases and rises as income decreases.

Question 2

Why is discretionary fiscal policy considered risky or somewhat uncertain?

Accepted Answer

The exact effect on real GDP is uncertai

Question 3

Which of the following Nobel laureate economists is against the use of discretionary fiscal policy?

Accepted Answer

A) Milton Friedman. 
B) James Tobin. 
C) John Maynard Keynes. 
D) Paul Krugman. 
E) All of these favor discretionary fiscal policy. 
A) Milton Friedman. 
B) James Tobin. 
C) John Maynard Keynes. 
D) Paul Krugman. 
E) All of these favor discretionary fiscal policy.

Question 4

An increase in government spending will

Accepted Answer

A) increase real GDP in the short run and the long run. 
B) increase real GDP in the short run. 
C) increase the GDP to debt ratio. 
D) have no effect on real GDP because taxes will increase. 
E) increase real GDP in the short run and potential GDP in the long run. 
A) increase real GDP in the short run and the long run. 
B) increase real GDP in the short run. 
C) increase the GDP to debt ratio. 
D) have no effect on real GDP because taxes will increase. 
E) increase real GDP in the short run and potential GDP in the long run.

Question 5

What is the difference between the deficit and the debt?

Accepted Answer

The federal debt is the total

Question 6

The U.S. federal budget for 2017 projects higher expenditures than tax revenues.

Accepted Answer

A) True 
 B)False

Question 7

The Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) of 2003 was implemented amidst concerns about the slow recovery of the economy following the 2001 recession.

Accepted Answer

A) True 
 B)False

Question 8

State and local governments do not run deficits.

Accepted Answer

A) True 
 B)False

Question 9

The recent use of discretionary fiscal policy was facilitated by

Accepted Answer

A) the elimination of the balanced budget amendment. 
B) the ineffectiveness of monetary policy. 
C) changing beliefs among economists about the lags of monetary policy. 
D) the use of automatic policy rules. 
E) the prediction of high rates of unemployment that could otherwise occur in the future if government did nothing. 
A) the elimination of the balanced budget amendment. 
B) the ineffectiveness of monetary policy. 
C) changing beliefs among economists about the lags of monetary policy. 
D) the use of automatic policy rules. 
E) the prediction of high rates of unemployment that could otherwise occur in the future if government did nothing.

Question 10

The major summary document describing U.S. federal fiscal policy is the

Accepted Answer

A) Economic Report of the President. 
B) U.S.Constitution. 
C) Congressional Record. 
D) federal budget. 
E) Federal Reserve Bulletin. 
A) Economic Report of the President. 
B) U.S.Constitution. 
C) Congressional Record. 
D) federal budget. 
E) Federal Reserve Bulletin.

Question 11

Suppose a recession occurs unexpectedly in December one year. Explain why the actual budget will differ from the predicted budget.

Accepted Answer

Tax revenue is likely to be lo

Question 12

If a federal budget in which expenditures exceed revenue is enacted, the federal government will

Accepted Answer

A) raise taxes. 
B) raise taxes and cut spending. 
C) cut spending. 
D) sell off assets. 
E) borrow money from the private sector. 
A) raise taxes. 
B) raise taxes and cut spending. 
C) cut spending. 
D) sell off assets. 
E) borrow money from the private sector.

Question 13

The debt to GDP ratio measures

Accepted Answer

A) debt as a percentage of per capita GDP. 
B) debt as a percentage of nominal GDP. 
C) nominal GDP as a percentage of debt. 
D) debt as a percentage of real GDP. 
E) debt as a percentage of average GDP. 
A) debt as a percentage of per capita GDP. 
B) debt as a percentage of nominal GDP. 
C) nominal GDP as a percentage of debt. 
D) debt as a percentage of real GDP. 
E) debt as a percentage of average GDP.

Question 14

Consider the following hypothetical data (in billions of dollars):

Accepted Answer

The answer of Consider the following hypothetical data (in billions...

Question 15

The aim of countercyclical fiscal policy is to

Accepted Answer

A) shift the inflation adjustment line so that real GDP is equal to potential GDP. 
B) reduce unemployment. 
C) reduce inflation. 
D) increase potential GDP. 
E) shift the aggregate demand curve so that real GDP equals potential GDP. 
A) shift the inflation adjustment line so that real GDP is equal to potential GDP. 
B) reduce unemployment. 
C) reduce inflation. 
D) increase potential GDP. 
E) shift the aggregate demand curve so that real GDP equals potential GDP.

Question 16

Which of the following is not an argument for the use of rules over discretion?

Accepted Answer

A) Credibility 
B) Budget balances are more predictable. 
C) Recognition lags 
D) Reliability 
E) Automatic stabilizers may not be large enough. 
A) Credibility 
B) Budget balances are more predictable. 
C) Recognition lags 
D) Reliability 
E) Automatic stabilizers may not be large enough.

Question 17

About half of the U.S. budget consists of social security, Medicare, and Medicaid. Which of the following is not true about these important expenditures?

Accepted Answer

A) These are known as entitlement programs. 
B) These programs are expected to remain relatively constant in coming years. 
C) Social security and Medicare provide income and health care for the elderly, and Medicaid provides health care for people and families with very low incomes. 
D) All of the above represent true facts. 
E) None of the above are true facts. 
A) These are known as entitlement programs. 
B) These programs are expected to remain relatively constant in coming years. 
C) Social security and Medicare provide income and health care for the elderly, and Medicaid provides health care for people and families with very low incomes. 
D) All of the above represent true facts. 
E) None of the above are true facts.

Question 18

By law, Congress and the president must approve the budget by the beginning of the fiscal year.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following types of taxes have been growing rapidly as a share of federal government revenues?

Accepted Answer

A) Corporate taxes 
B) Sales taxes 
C) Payroll taxes 
D) Income taxes 
E) Property taxes 
A) Corporate taxes 
B) Sales taxes 
C) Payroll taxes 
D) Income taxes 
E) Property taxes

Question 20

Suppose you have the following data on projected and actual figures for the U.S. budget for 2001 (in billions of dollars):

Accepted Answer

The answer of Suppose you have the following data on...

Exam 26: Fiscal Policy

A progressive tax system implies that

Why is discretionary fiscal policy considered risky or somewhat uncertain?

Which of the following Nobel laureate economists is against the use of discretionary fiscal policy?

An increase in government spending will

What is the difference between the deficit and the debt?

The U.S. federal budget for 2017 projects higher expenditures than tax revenues.

The Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) of 2003 was implemented amidst concerns about the slow recovery of the economy following the 2001 recession.

State and local governments do not run deficits.

The recent use of discretionary fiscal policy was facilitated by

The major summary document describing U.S. federal fiscal policy is the

Suppose a recession occurs unexpectedly in December one year. Explain why the actual budget will differ from the predicted budget.

If a federal budget in which expenditures exceed revenue is enacted, the federal government will

The debt to GDP ratio measures

Consider the following hypothetical data (in billions of dollars):

The aim of countercyclical fiscal policy is to

Which of the following is not an argument for the use of rules over discretion?

About half of the U.S. budget consists of social security, Medicare, and Medicaid. Which of the following is not true about these important expenditures?

By law, Congress and the president must approve the budget by the beginning of the fiscal year.

Which of the following types of taxes have been growing rapidly as a share of federal government revenues?

Suppose you have the following data on projected and actual figures for the U.S. budget for 2001 (in billions of dollars):

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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