Question 1

Which of the following is an example of crowding out?

Accepted Answer

A)  A decrease in the rate of growth of the money supply which causes a decrease in Real GDP. 
B)  A deficit causes an increase in interest rates, which causes a decrease in investment spending. 
C)  An increase in tariffs which causes a decrease in imports. 
D)  A decrease in government housing subsidies which causes an increase in private spending on housing. 
A)  A decrease in the rate of growth of the money supply which causes a decrease in Real GDP. 
B)  A deficit causes an increase in interest rates, which causes a decrease in investment spending. 
C)  An increase in tariffs which causes a decrease in imports. 
D)  A decrease in government housing subsidies which causes an increase in private spending on housing.

Question 2

At a taxable income of $40,000 Mari's income tax is $7,400. When her taxable income rises to $45,000 her income tax is $8,400.Based on this information,what is Mari's marginal tax rate?

Accepted Answer

A)  18.7 percent 
B)  39 percent 
C)  10 percent 
D)  30 percent 
E)  20 percent 
A)  18.7 percent 
B)  39 percent 
C)  10 percent 
D)  30 percent 
E)  20 percent

Question 3

In 2011,federal government spending made up approximately __________ percent of GDP in the United States.

Accepted Answer

A)  14 
B)  24 
C)  34 
D)  44 
E)  54 
A)  14 
B)  24 
C)  34 
D)  44 
E)  54

Question 4

All other things held constant,lower marginal (income)tax rates

Accepted Answer

A)  necessarily increase tax revenues. 
B)  necessarily decrease tax revenues. 
C)  decrease the attractiveness of productive activities relative to leisure and tax- avoidance activities, and shift the SRAS curve rightward. 
D)  do not affect the attractiveness of productive activities relative to leisure and tax- avoidance activities and therefore the SRAS does not shift rightward or leftward. 
E)  increase the attractiveness of productive activities relative to leisure and tax- avoidance activities and shift the SRAS curve rightward. 
A)  necessarily increase tax revenues. 
B)  necessarily decrease tax revenues. 
C)  decrease the attractiveness of productive activities relative to leisure and tax- avoidance activities, and shift the SRAS curve rightward. 
D)  do not affect the attractiveness of productive activities relative to leisure and tax- avoidance activities and therefore the SRAS does not shift rightward or leftward. 
E)  increase the attractiveness of productive activities relative to leisure and tax- avoidance activities and shift the SRAS curve rightward.

Question 5

Suppose aggregate demand is too low to bring about the Natural Real GDP level.A Keynesian policy prescription would call for a(n)_____________________ to close this recessionary gap.

Accepted Answer

A)  increase in government spending 
B)  decrease in government spending 
C)  increase in taxes 
D)  decrease in taxes 
E)  a or d 
A)  increase in government spending 
B)  decrease in government spending 
C)  increase in taxes 
D)  decrease in taxes 
E)  a or d

Question 6

Suppose the government attempts to stimulate the economy by increasing spending without increasing taxes.Which of the following statements is most likely to be accepted by someone who believes in crowding out?

Accepted Answer

A)  The government's actions will have their intended effect. 
B)  The government's actions will cause businesses to become more optimistic about the economy, and they will increase their output even more than the government had intended. 
C)  The government's actions will raise interest rates, causing decreased investment and consumption, and the economy will not expand as much as the government had intended. 
D)  This is a trick question, because the federal government is required by law to increase taxes by the same amount as it increases expenditures. 
A)  The government's actions will have their intended effect. 
B)  The government's actions will cause businesses to become more optimistic about the economy, and they will increase their output even more than the government had intended. 
C)  The government's actions will raise interest rates, causing decreased investment and consumption, and the economy will not expand as much as the government had intended. 
D)  This is a trick question, because the federal government is required by law to increase taxes by the same amount as it increases expenditures.

Question 7

If there is complete crowding out,the change in Real GDP that results from a given change in autonomous spending will be

Accepted Answer

A)  zero. 
B)  greater than if there was incomplete crowding out. 
C)  infinite. 
D)  There is not enough information to answer the question. 
A)  zero. 
B)  greater than if there was incomplete crowding out. 
C)  infinite. 
D)  There is not enough information to answer the question.

Question 8

Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $700 million.This is an example of

Accepted Answer

A)  incomplete crowding out. 
B)  complete crowding out. 
C)  zero crowding out. 
D)  a and c 
E)  none of the above 
A)  incomplete crowding out. 
B)  complete crowding out. 
C)  zero crowding out. 
D)  a and c 
E)  none of the above

Question 9

In 2009,the top 25 percent of income earners in the U.S.(by the size of their taxable incomes)paid about __________ percent of the total federal income taxes.

Accepted Answer

A)  25 
B)  30 
C)  54 
D)  65 
E)  87 
A)  25 
B)  30 
C)  54 
D)  65 
E)  87

Question 10

If company Z is receiving a government subsidy,the government is taking money from ____________ and giving it to company Z. If company Z is getting a tax deduction (instead of receiving a subsidy)then company Z is ______________________.

Accepted Answer

A)  taxpayers; paying more in taxes than it would without the tax deduction 
B)  taxpayers; subsidizing the taxpayers 
C)  Congress; paying more in taxes than it would without the tax deduction 
D)  taxpayers; paying less in taxes than it would without the tax deduction 
A)  taxpayers; paying more in taxes than it would without the tax deduction 
B)  taxpayers; subsidizing the taxpayers 
C)  Congress; paying more in taxes than it would without the tax deduction 
D)  taxpayers; paying less in taxes than it would without the tax deduction

Question 11

According to the text (based upon 2009 data),if the bottom half of all U.S.income tax payers were allowed to stop paying the income tax entirely and the top 50% continued to pay as they do now,tax revenues to the government would drop by about

Accepted Answer

A)  2.3 percent. 
B)  15.7 percent. 
C)  23.9 percent. 
D)  33.3 percent. 
E)  50.8 percent 
A)  2.3 percent. 
B)  15.7 percent. 
C)  23.9 percent. 
D)  33.3 percent. 
E)  50.8 percent

Question 12

In 2011,U.S.federal government revenues (made up of taxes and fees),totaled ________ trillion.

Accepted Answer

A)  $4.3 
B)  $3.3 
C)  $2.3 
D)  $1.3 
A)  $4.3 
B)  $3.3 
C)  $2.3 
D)  $1.3

Question 13

When we speak of expansionary fiscal policy,policymakers __________ government spending,or __________ taxes,or both.

Accepted Answer

A)  decrease; decrease 
B)  increase; increase 
C)  increase; decrease 
D)  decrease; increase 
A)  decrease; decrease 
B)  increase; increase 
C)  increase; decrease 
D)  decrease; increase

Question 14

__________ flows from government to households.

Accepted Answer

A)  A transfer payment 
B)  A tax payment 
C)  The Laffer Curve 
D)  Crowding out 
A)  A transfer payment 
B)  A tax payment 
C)  The Laffer Curve 
D)  Crowding out

Question 15

Keynesians believe

Accepted Answer

A)  in laissez-faire. 
B)  that equilibrium may exist at less than full employment. 
C)  in the use of fiscal policy to stabilize the economy. 
D)  b and c 
E)  all of the above 
A)  in laissez-faire. 
B)  that equilibrium may exist at less than full employment. 
C)  in the use of fiscal policy to stabilize the economy. 
D)  b and c 
E)  all of the above

Question 16

Some of the crowding out of private expenditures may come in the form of

Accepted Answer

A)  an increase in consumption. 
B)  an increase in net exports. 
C)  a decrease in taxes. 
D)  a decrease in net exports. 
A)  an increase in consumption. 
B)  an increase in net exports. 
C)  a decrease in taxes. 
D)  a decrease in net exports.

Question 17

The marginal tax rate is found by dividing a person's tax payment by the person's taxable income.

Accepted Answer

A) True 
 B)False

Question 18

Exhibit 11-2
  
-Refer to Exhibit 11-2.At point A,if we cut tax rates slightly,tax revenues

Accepted Answer

A)  increase. 
B)  decrease. 
C)  will not change. 
D)  drop to zero. 
A)  increase. 
B)  decrease. 
C)  will not change. 
D)  drop to zero.

Question 19

Crowding out suggests that

Accepted Answer

A)  high taxes reduce both consumption and saving. 
B)  increases in consumption are always at the expense of saving. 
C)  increases in government spending may raise the interest rate, thereby reducing investment. 
D)  increases in government spending will close a recessionary gap. 
A)  high taxes reduce both consumption and saving. 
B)  increases in consumption are always at the expense of saving. 
C)  increases in government spending may raise the interest rate, thereby reducing investment. 
D)  increases in government spending will close a recessionary gap.

Question 20

Suppose that in a certain nation the flat income tax rate of 40 percent is reduced to 35 percent and as a result taxable income rises from $400 billion to $600 billion.Tax revenues __________,indicating the nation is on the __________ portion of its Laffer curve.

Accepted Answer

A)  rise; upward-sloping 
B)  rise; downward-sloping 
C)  fall; upward-sloping 
D)  fall; downward-sloping 
A)  rise; upward-sloping 
B)  rise; downward-sloping 
C)  fall; upward-sloping 
D)  fall; downward-sloping

Exam 11: Fiscal Policy and the Federal Budget

Which of the following is an example of crowding out?

At a taxable income of $40,000 Mari's income tax is $7,400. When her taxable income rises to $45,000 her income tax is $8,400.Based on this information,what is Mari's marginal tax rate?

In 2011,federal government spending made up approximately __________ percent of GDP in the United States.

All other things held constant,lower marginal (income)tax rates

Suppose aggregate demand is too low to bring about the Natural Real GDP level.A Keynesian policy prescription would call for a(n)_____________________ to close this recessionary gap.

Suppose the government attempts to stimulate the economy by increasing spending without increasing taxes.Which of the following statements is most likely to be accepted by someone who believes in crowding out?

If there is complete crowding out,the change in Real GDP that results from a given change in autonomous spending will be

Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $700 million.This is an example of

In 2009,the top 25 percent of income earners in the U.S.(by the size of their taxable incomes)paid about __________ percent of the total federal income taxes.

If company Z is receiving a government subsidy,the government is taking money from ____________ and giving it to company Z. If company Z is getting a tax deduction (instead of receiving a subsidy)then company Z is ______________________.

According to the text (based upon 2009 data),if the bottom half of all U.S.income tax payers were allowed to stop paying the income tax entirely and the top 50% continued to pay as they do now,tax revenues to the government would drop by about

In 2011,U.S.federal government revenues (made up of taxes and fees),totaled ________ trillion.

When we speak of expansionary fiscal policy,policymakers __________ government spending,or __________ taxes,or both.

__________ flows from government to households.

Keynesians believe

Some of the crowding out of private expenditures may come in the form of

The marginal tax rate is found by dividing a person's tax payment by the person's taxable income.

Exhibit 11-2 -Refer to Exhibit 11-2.At point A,if we cut tax rates slightly,tax revenues

Crowding out suggests that

Suppose that in a certain nation the flat income tax rate of 40 percent is reduced to 35 percent and as a result taxable income rises from $400 billion to $600 billion.Tax revenues __________,indicating the nation is on the __________ portion of its Laffer curve.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Money, Banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

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Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

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Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

If company Z is receiving a government subsidy,the government is taking money from and giving it to company Z. If company Z is getting a tax deduction (instead of receiving a subsidy)then company Z is __________.

When we speak of expansionary fiscal policy,policymakers government spending,or taxes,or both.

Suppose that in a certain nation the flat income tax rate of 40 percent is reduced to 35 percent and as a result taxable income rises from $400 billion to $600 billion.Tax revenues ,indicating the nation is on the portion of its Laffer curve.