Question 1

Complete crowding out occurs when an increase in government spending is completely offset by an equal increase in tax revenues.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 11-2
  
-Refer to Exhibit 11-2.At the highest point above the horizontal axis,tax revenues

Accepted Answer

A)  are maximized. 
B)  are lower than at A and higher than at B. 
C)  are lower than at B and higher than at A. 
D)  drop to zero. 
A)  are maximized. 
B)  are lower than at A and higher than at B. 
C)  are lower than at B and higher than at A. 
D)  drop to zero.

Question 3

An example of contractionary fiscal policy is

Accepted Answer

A)  an increase in government expenditures, or an increase in taxes, or both. 
B)  a decrease in government expenditures, or a decrease in taxes, or both. 
C)  an increase in government expenditures, or a decrease in taxes, or both. 
D)  a decrease in government expenditures, or an increase in taxes, or both. 
E)  increasing government expenditures while holding taxes constant. 
A)  an increase in government expenditures, or an increase in taxes, or both. 
B)  a decrease in government expenditures, or a decrease in taxes, or both. 
C)  an increase in government expenditures, or a decrease in taxes, or both. 
D)  a decrease in government expenditures, or an increase in taxes, or both. 
E)  increasing government expenditures while holding taxes constant.

Question 4

Fiscal policy is

Accepted Answer

A)  the money supply policy that the Fed pursues to achieve particular economic goals. 
B)  the spending and tax policy that the government pursues to achieve particular macroeconomic goals. 
C)  the investment policy that businesses pursue to achieve particular macroeconomic goals. 
D)  the spending and saving policy that consumers pursue to achieve particular macroeconomic goals. 
E)  none of the above 
A)  the money supply policy that the Fed pursues to achieve particular economic goals. 
B)  the spending and tax policy that the government pursues to achieve particular macroeconomic goals. 
C)  the investment policy that businesses pursue to achieve particular macroeconomic goals. 
D)  the spending and saving policy that consumers pursue to achieve particular macroeconomic goals. 
E)  none of the above

Question 5

Suppose the economy is in a recessionary gap. If government expenditures are currently $700 billion and tax revenues are currently $450 billion,the (total)budget deficit is _____________. Assume that economists estimate that if the economy were operating at full employment then government expenditures would be $600 billion and tax revenues would be $500 billion. The structural deficit is _________________ and the cyclical deficit is _______________.

Accepted Answer

A)  $1.15 trillion; $1.1 trillion; $100 billion 
B)  $400 billion; $300 billion; $100 billion 
C)  $400 billion; $100 billion; $300 billion 
D)  $250 billion; $100 billion; $150 billion 
A)  $1.15 trillion; $1.1 trillion; $100 billion 
B)  $400 billion; $300 billion; $100 billion 
C)  $400 billion; $100 billion; $300 billion 
D)  $250 billion; $100 billion; $150 billion

Question 6

Exhibit 11-5
   
Assume that the farmer grows wheat and sells it to the miller, the miller turns the wheat into flour and sells it to the baker, and the baker turns the flour into bread and sells it to the final consumer.
-Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT). If the government imposes a VAT rate of 10 percent,the miller must pay ___________ in VAT tax and will need to raise the price he charges the baker to _______________.

Accepted Answer

A)  $0.06; $0.66 
B)  $0.08; $0.88 
C)  $0.08; $1.54 
D)  $0.60; $1.20 
A)  $0.06; $0.66 
B)  $0.08; $0.88 
C)  $0.08; $1.54 
D)  $0.60; $1.20

Question 7

A "flat tax" is another term for __________ tax.

Accepted Answer

A)  a progressive 
B)  a proportional 
C)  a regressive 
D)  the inflation 
A)  a progressive 
B)  a proportional 
C)  a regressive 
D)  the inflation

Question 8

In 2011,the budget deficit in the United States was approximately

Accepted Answer

A)  $1.3 billion 
B)  $13 billion. 
C)  $1,300 billion. 
D)  $13 trillion. 
E)  $130 billion. 
A)  $1.3 billion 
B)  $13 billion. 
C)  $1,300 billion. 
D)  $13 trillion. 
E)  $130 billion.

Question 9

Suppose the economy is at a position below the institutional production possibilities frontier.In response to this situation,Keynesian economists would propose that the government should __________ expenditures,which will cause the aggregate demand curve to shift to the __________ in an attempt to close this __________ gap.

Accepted Answer

A)  decrease; left; inflationary 
B)  increase; right; inflationary 
C)  decrease; right; inflationary 
D)  increase; right; recessionary 
E)  decrease; left; recessionary 
A)  decrease; left; inflationary 
B)  increase; right; inflationary 
C)  decrease; right; inflationary 
D)  increase; right; recessionary 
E)  decrease; left; recessionary

Question 10

Which piece of evidence is consistent with zero crowding out?

Accepted Answer

A)  Government purchases rise and Real GDP does not change. 
B)  Government purchases rise and investment spending declines. 
C)  Government purchases rise and net exports decline. 
D)  Government purchases rise and consumption declines. 
E)  none of the above 
A)  Government purchases rise and Real GDP does not change. 
B)  Government purchases rise and investment spending declines. 
C)  Government purchases rise and net exports decline. 
D)  Government purchases rise and consumption declines. 
E)  none of the above

Question 11

According to Keynesian theory,a recessionary gap can be closed using expansionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 12

Senator Smith proposes that the income tax structure be revised to have two tax rates.The first,16 percent,applies to persons whose income is between $0 and $40,000 a year.The second,23 percent,applies to persons whose income is more than $40,000 a year.This is a

Accepted Answer

A)  regressive income tax structure. 
B)  proportional income tax structure. 
C)  progressive income tax structure. 
D)  cyclical income tax structure. 
A)  regressive income tax structure. 
B)  proportional income tax structure. 
C)  progressive income tax structure. 
D)  cyclical income tax structure.

Question 13

The Laffer curve makes the point that cutting a very high marginal tax rate can __________ the tax base enough so that tax revenues __________.

Accepted Answer

A)  lower; rise 
B)  lower; fall 
C)  raise; rise 
D)  raise; fall 
A)  lower; rise 
B)  lower; fall 
C)  raise; rise 
D)  raise; fall

Question 14

A permanent marginal tax rate cut would be expected to shift both the short-run and the long-run aggregate supply curves to the right.

Accepted Answer

A) True 
 B)False

Question 15

Elaine's taxable income increases by $1 and her tax payment increases by $0.28.Her marginal tax rate is

Accepted Answer

A)  72 percent. 
B)  28 percent. 
C)  56 percent. 
D)  There is not enough information to answer the question. 
A)  72 percent. 
B)  28 percent. 
C)  56 percent. 
D)  There is not enough information to answer the question.

Question 16

The Laffer curve illustrates that

Accepted Answer

A)  there are two tax rates at which zero tax revenues are raised. 
B)  a decrease in tax rates can cause an increase in tax revenues. 
C)  an increase in tax rates can cause an increase in tax revenues. 
D)  an increase in tax rates can cause a decrease in tax revenues. 
E)  all of the above 
A)  there are two tax rates at which zero tax revenues are raised. 
B)  a decrease in tax rates can cause an increase in tax revenues. 
C)  an increase in tax rates can cause an increase in tax revenues. 
D)  an increase in tax rates can cause a decrease in tax revenues. 
E)  all of the above

Question 17

Which of the following illustrates the effectiveness lag?

Accepted Answer

A)  Policymakers believe an economic downturn has occurred, but they decide not to take action until they are sure. 
B)  Policymakers are in the process of proposing policy measures to deal with the current economic slowdown. 
C)  Policymakers first learn of the recession when it is five months old. 
D)  Policymakers implement policy X, but it will be a few months before it starts working. 
E)  Policymakers agree to policy X, but it will be at least two months before the policy is implemented. 
A)  Policymakers believe an economic downturn has occurred, but they decide not to take action until they are sure. 
B)  Policymakers are in the process of proposing policy measures to deal with the current economic slowdown. 
C)  Policymakers first learn of the recession when it is five months old. 
D)  Policymakers implement policy X, but it will be a few months before it starts working. 
E)  Policymakers agree to policy X, but it will be at least two months before the policy is implemented.

Question 18

A "flat tax" is another term for a regressive tax.

Accepted Answer

A) True 
 B)False

Question 19

A balanced budget occurs when

Accepted Answer

A)  the national debt is reduced to zero dollars. 
B)  a budget deficit during one year is matched by a budget surplus in the next year. 
C)  transfer payments equal tax revenues. 
D)  government expenditures equal tax revenues. 
E)  the deficit-GDP ratio equals one. 
A)  the national debt is reduced to zero dollars. 
B)  a budget deficit during one year is matched by a budget surplus in the next year. 
C)  transfer payments equal tax revenues. 
D)  government expenditures equal tax revenues. 
E)  the deficit-GDP ratio equals one.

Question 20

The economy is in a recessionary gap and a Keynesian economist advocates expansionary fiscal policy.What is a likely reason this economist advocates expansionary fiscal policy?

Accepted Answer

A)  The economist believes the economy is stuck in a recessionary gap and crowding out will be complete. 
B)  The economist believes the economy is stuck in a recessionary gap and there will be no crowding out. 
C)  The economist believes that wages are too flexible and that crowding out will be incomplete. 
D)  The economist believes the AD curve is downward-sloping, the SRAS curve is upward-sloping, and prices are flexible. 
E)  none of the above 
A)  The economist believes the economy is stuck in a recessionary gap and crowding out will be complete. 
B)  The economist believes the economy is stuck in a recessionary gap and there will be no crowding out. 
C)  The economist believes that wages are too flexible and that crowding out will be incomplete. 
D)  The economist believes the AD curve is downward-sloping, the SRAS curve is upward-sloping, and prices are flexible. 
E)  none of the above

Exam 11: Fiscal Policy and the Federal Budget

Complete crowding out occurs when an increase in government spending is completely offset by an equal increase in tax revenues.

Exhibit 11-2 -Refer to Exhibit 11-2.At the highest point above the horizontal axis,tax revenues

An example of contractionary fiscal policy is

Fiscal policy is

A "flat tax" is another term for __________ tax.

In 2011,the budget deficit in the United States was approximately

Which piece of evidence is consistent with zero crowding out?

According to Keynesian theory,a recessionary gap can be closed using expansionary fiscal policy.

Senator Smith proposes that the income tax structure be revised to have two tax rates.The first,16 percent,applies to persons whose income is between $0 and $40,000 a year.The second,23 percent,applies to persons whose income is more than $40,000 a year.This is a

The Laffer curve makes the point that cutting a very high marginal tax rate can __________ the tax base enough so that tax revenues __________.

A permanent marginal tax rate cut would be expected to shift both the short-run and the long-run aggregate supply curves to the right.

Elaine's taxable income increases by $1 and her tax payment increases by $0.28.Her marginal tax rate is

The Laffer curve illustrates that

Which of the following illustrates the effectiveness lag?

A "flat tax" is another term for a regressive tax.

A balanced budget occurs when

The economy is in a recessionary gap and a Keynesian economist advocates expansionary fiscal policy.What is a likely reason this economist advocates expansionary fiscal policy?

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

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Classical Macroeconomics and the Self Regulating Economy

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

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Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

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The Laffer curve makes the point that cutting a very high marginal tax rate can the tax base enough so that tax revenues .