Exam 11: Fiscal Policy and the Federal Budget

At a taxable income of $80,000 Adam's income tax is $18,400. When his taxable income rises to $90,000 his income tax is $21,000.Based on this information,Adam's marginal tax rate is _____________ percent and his new average tax rate is ____________ percent.

Fiscal policy is implemented primarily by

Which of the following statements is true?

To eliminate a recessionary gap,Keynesian theory indicates that government should

If a person predicts that a cut in income tax rates will decrease income tax revenues,he or she implicitly assumes that the percentage __________ in the tax base will be __________ the percentage cut in the tax rate.

If an economist recommends that the government reduce the tax rate in order to increase tax revenues (based on the Laffer curve),she is implicitly assuming that the economy is currently operating at a point

If the structural deficit is $750 billion and the cyclical deficit is $150 billion,it follows that the __________ is __________ billion.

When Congress and the President agree to increase income taxes,this is an example of contractionary fiscal policy.

A subsidy is the same thing as a tax deduction

Fiscal policy may not work as policymakers intend it to work because of

Crowding out results when an increase in government spending leads to declines in consumption,investment,and/or net exports.

Describe the fiscal policy remedies that a Keynesian economist might prescribe to close a recessionary gap.How might the issue of crowding out impact the effectiveness of these policies?

Suppose the economy's current AD and SRAS curves intersect to the right of Natural Real GDP.Keynesians might advise a policy of tax __________ to shift __________.

Income tax revenues rise as income tax rates fall.It follows that the

With complete crowding out,an increase in government spending

Reductions in private spending as a result of increased government spending or borrowing is called

Which of the following illustrates the data lag?

The AD curve shifts to the right with an increase in taxes or a decrease in government purchases.

A taxpayer pays __________ tax rate on additional income if the income tax structure is progressive,__________ tax rate on additional income if the income tax structure is proportional,and __________ tax rate on additional income if the income tax structure is regressive.

Define crowding out. Give a hypothetical numerical example to show the difference between complete crowding out and incomplete crowding out. Explain how complete and incomplete crowding out could impact the effectiveness of fiscal policy.