Question 1

To identify whether fiscal policy is expansionary or contractionary,one should focus on the cyclical deficit.

Accepted Answer

A) True 
 B)False

Question 2

List and describe three of the five different lags that can occur which may impede the effectiveness of the use of fiscal policy.

Accepted Answer

Data lag - The time it takes for policym

Question 3

The economy is in a recessionary gap,wages are inflexible downward,and there is complete crowding out.Which of the following is consistent with this state of affairs?

Accepted Answer

A)  The economy will soon self-regulate and produce Natural Real GDP. 
B)  Expansionary fiscal policy will be effective at removing the economy from the recessionary gap. 
C)  If expansionary fiscal policy is implemented, the AD curve will shift to the right, and eventually the price level and Real GDP will rise. 
D)  b and c 
E)  none of the above 
A)  The economy will soon self-regulate and produce Natural Real GDP. 
B)  Expansionary fiscal policy will be effective at removing the economy from the recessionary gap. 
C)  If expansionary fiscal policy is implemented, the AD curve will shift to the right, and eventually the price level and Real GDP will rise. 
D)  b and c 
E)  none of the above

Question 4

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 42,001st dollar of taxable income earned?

Accepted Answer

A)  15% 
B)  20% 
C)  25% 
D)  30% 
E)  There is not enough information provided to answer this question. 
A)  15% 
B)  20% 
C)  25% 
D)  30% 
E)  There is not enough information provided to answer this question.

Question 5

Congress cuts income taxes.Is this an example of a demand-side or supply-side fiscal policy action?

Accepted Answer

A)  Demand-side, since a cut in taxes can raise consumption and investment. 
B)  Supply-side, since a cut in taxes can shift the SRAS and LRAS curves to the right. 
C)  Neither demand-side nor supply-side, since what happens on the demand-side completely offsets what happens on the supply-side. 
D)  a and b 
A)  Demand-side, since a cut in taxes can raise consumption and investment. 
B)  Supply-side, since a cut in taxes can shift the SRAS and LRAS curves to the right. 
C)  Neither demand-side nor supply-side, since what happens on the demand-side completely offsets what happens on the supply-side. 
D)  a and b

Question 6

The three federal taxes that together accounted for 91 percent of all federal government tax receipts in 2011 were

Accepted Answer

A)  individual income tax, corporate income tax, property tax. 
B)  corporate income tax, national consumption tax, estate tax. 
C)  individual income tax, social security tax, corporate income tax. 
D)  social security tax, Medicare tax, estate tax. 
E)  none of the above 
A)  individual income tax, corporate income tax, property tax. 
B)  corporate income tax, national consumption tax, estate tax. 
C)  individual income tax, social security tax, corporate income tax. 
D)  social security tax, Medicare tax, estate tax. 
E)  none of the above

Question 7

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,000th of dollar of taxable income earned?

Accepted Answer

A)  15% 
B)  20% 
C)  25% 
D)  30% 
E)  There is not enough information provided to answer this question. 
A)  15% 
B)  20% 
C)  25% 
D)  30% 
E)  There is not enough information provided to answer this question.

Question 8

A federal budget deficit

Accepted Answer

A)  occurs when government expenditures exceed tax revenues. 
B)  occurs when tax revenues exceed government expenditures. 
C)  occurs when transfer payments exceed tax revenues. 
D)  will always result when Congress and the president cannot agree on expenditures. 
E)  occurs when monetary policy works in the opposite direction of fiscal policy. 
A)  occurs when government expenditures exceed tax revenues. 
B)  occurs when tax revenues exceed government expenditures. 
C)  occurs when transfer payments exceed tax revenues. 
D)  will always result when Congress and the president cannot agree on expenditures. 
E)  occurs when monetary policy works in the opposite direction of fiscal policy.

Question 9

Supply-side economists believe reductions in tax rates can

Accepted Answer

A)  shift the aggregate demand curve to the left. 
B)  shift the short run aggregate supply curve to the left. 
C)  increase output and lower prices. 
D)  decrease output and lower prices. 
A)  shift the aggregate demand curve to the left. 
B)  shift the short run aggregate supply curve to the left. 
C)  increase output and lower prices. 
D)  decrease output and lower prices.

Question 10

When the economy is in a recessionary gap,Keynesian economists will often advocate expansionary policy measures.Why?

Accepted Answer

A)  Keynesians believe the economy sometimes gets stuck in a recessionary gap and can't get itself out without government intervention. 
B)  Keynesians believe the economy itself sometimes takes too long to eliminate the recessionary gap and return to full-employment output. 
C)  Keynesians are generally in favor of increasing taxes. 
D)  a and b 
E)  a and c 
A)  Keynesians believe the economy sometimes gets stuck in a recessionary gap and can't get itself out without government intervention. 
B)  Keynesians believe the economy itself sometimes takes too long to eliminate the recessionary gap and return to full-employment output. 
C)  Keynesians are generally in favor of increasing taxes. 
D)  a and b 
E)  a and c

Question 11

The United States currently has a progressive income tax structure.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that income tax revenues are maximized at an average (income)tax rate of 45 percent.If the Laffer curve is a correct diagrammatic representation of the relationship between tax rates and tax revenue,it follows that a tax rate of

Accepted Answer

A)  35 percent will reduce tax revenues. 
B)  48 percent will reduce tax revenues. 
C)  48 percent will generate as much tax revenue as a tax rate of 45 percent. 
D)  35 percent will generate as much tax revenue as a tax rate of 45 percent. 
E)  a and b 
A)  35 percent will reduce tax revenues. 
B)  48 percent will reduce tax revenues. 
C)  48 percent will generate as much tax revenue as a tax rate of 45 percent. 
D)  35 percent will generate as much tax revenue as a tax rate of 45 percent. 
E)  a and b

Question 13

The marginal tax rate is equal to the

Accepted Answer

A)  total amount of a person's tax payment divided by the total amount of the person's taxable income. 
B)  total amount of a person's tax payment divided by the change in the person's taxable income. 
C)  change in the person's tax payment divided by the total amount of the person's taxable income. 
D)  change in the person's tax payment divided by the change in the person's taxable income. 
A)  total amount of a person's tax payment divided by the total amount of the person's taxable income. 
B)  total amount of a person's tax payment divided by the change in the person's taxable income. 
C)  change in the person's tax payment divided by the total amount of the person's taxable income. 
D)  change in the person's tax payment divided by the change in the person's taxable income.

Question 14

Explain how a value-added tax (VAT)works and how it differs from a sales tax. What impact does a VAT have on government revenue and the price of products paid by consumers?

Accepted Answer

A VAT is a tax applied to the value adde

Question 15

Both Jones and Smith agree that the economy is in a recessionary gap.Jones proposes a tax cut and believes that it will raise Real GDP and lower the price level.Smith agrees that a tax cut will raise Real GDP,but he argues that it will not lower the price level in the short run. It follows that

Accepted Answer

A)  both Jones and Smith believe that lower taxes will shift the AD curve rightward, but will not shift the SRAS curve. 
B)  both Jones and Smith believe that lower taxes will shift the SRAS curve rightward, but will not shift the AD curve. 
C)  Jones believes that the tax cut will shift the SRAS curve rightward and the AD curve will not shift. Smith believes that the AD curve will shift rightward and the SRAS curve will not shift. 
D)  Smith believes that the tax cut will shift the SRAS curve rightward and the AD curve will not shift. Jones believes that the AD curve will shift rightward and the SRAS curve will not shift. 
A)  both Jones and Smith believe that lower taxes will shift the AD curve rightward, but will not shift the SRAS curve. 
B)  both Jones and Smith believe that lower taxes will shift the SRAS curve rightward, but will not shift the AD curve. 
C)  Jones believes that the tax cut will shift the SRAS curve rightward and the AD curve will not shift. Smith believes that the AD curve will shift rightward and the SRAS curve will not shift. 
D)  Smith believes that the tax cut will shift the SRAS curve rightward and the AD curve will not shift. Jones believes that the AD curve will shift rightward and the SRAS curve will not shift.

Question 16

Explain how tax cuts can impact both aggregate demand and aggregate supply.Give an example of each.

Accepted Answer

A tax cut can increase consumption or in

Question 17

Which of the following is not an example of a "lag" that diminishes the potential impact of fiscal policy?

Accepted Answer

A)  the data lag 
B)  the recessionary lag 
C)  the legislative lag 
D)  the transmission lag 
E)  None of the above; all are examples of such lags. 
A)  the data lag 
B)  the recessionary lag 
C)  the legislative lag 
D)  the transmission lag 
E)  None of the above; all are examples of such lags.

Question 18

With a progressive income tax,as real income rises,one's tax burden rises more than proportionally.

Accepted Answer

A) True 
 B)False

Question 19

Exhibit 11-4
  
-Refer to Exhibit 11-4. If a person's taxable income is $50,000,how much does he pay in taxes?

Accepted Answer

A)  $9,250 
B)  $8,500 
C)  $24,150 
D)  $12,500 
A)  $9,250 
B)  $8,500 
C)  $24,150 
D)  $12,500

Question 20

The top 1% of income earners in the U.S.(those with the highest taxable incomes)pay

Accepted Answer

A)  about the same percentage of their incomes in taxes as the average U.S. taxpayer. 
B)  a much lower percentage of their incomes in taxes than the average U.S. taxpayer. 
C)  a much higher percentage of their incomes in taxes than the average U.S. taxpayer. 
D)  about 15 percent of their incomes in income taxes 
E)  a and d 
A)  about the same percentage of their incomes in taxes as the average U.S. taxpayer. 
B)  a much lower percentage of their incomes in taxes than the average U.S. taxpayer. 
C)  a much higher percentage of their incomes in taxes than the average U.S. taxpayer. 
D)  about 15 percent of their incomes in income taxes 
E)  a and d

Exam 11: Fiscal Policy and the Federal Budget

To identify whether fiscal policy is expansionary or contractionary,one should focus on the cyclical deficit.

List and describe three of the five different lags that can occur which may impede the effectiveness of the use of fiscal policy.

The economy is in a recessionary gap,wages are inflexible downward,and there is complete crowding out.Which of the following is consistent with this state of affairs?

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 42,001st dollar of taxable income earned?

Congress cuts income taxes.Is this an example of a demand-side or supply-side fiscal policy action?

The three federal taxes that together accounted for 91 percent of all federal government tax receipts in 2011 were

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,000th of dollar of taxable income earned?

A federal budget deficit

Supply-side economists believe reductions in tax rates can

When the economy is in a recessionary gap,Keynesian economists will often advocate expansionary policy measures.Why?

The United States currently has a progressive income tax structure.

Suppose that income tax revenues are maximized at an average (income)tax rate of 45 percent.If the Laffer curve is a correct diagrammatic representation of the relationship between tax rates and tax revenue,it follows that a tax rate of

The marginal tax rate is equal to the

Explain how a value-added tax (VAT)works and how it differs from a sales tax. What impact does a VAT have on government revenue and the price of products paid by consumers?

Both Jones and Smith agree that the economy is in a recessionary gap.Jones proposes a tax cut and believes that it will raise Real GDP and lower the price level.Smith agrees that a tax cut will raise Real GDP,but he argues that it will not lower the price level in the short run. It follows that

Explain how tax cuts can impact both aggregate demand and aggregate supply.Give an example of each.

Which of the following is not an example of a "lag" that diminishes the potential impact of fiscal policy?

With a progressive income tax,as real income rises,one's tax burden rises more than proportionally.

Exhibit 11-4 -Refer to Exhibit 11-4. If a person's taxable income is $50,000,how much does he pay in taxes?

The top 1% of income earners in the U.S.(those with the highest taxable incomes)pay

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

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

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

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