Question 1

What are the main categories of the federal government outlays?

Accepted Answer

A) personal income taxes, expenditures on goods and services, and debt interest 
B) transfer payments, expenditures on goods and services, and debt interest 
C) investment income, debt interest and transfer payments 
D) indirect taxes, farmers' subsidies, and debt interest 
E) property taxes and sales taxes. 
A) personal income taxes, expenditures on goods and services, and debt interest 
B) transfer payments, expenditures on goods and services, and debt interest 
C) investment income, debt interest and transfer payments 
D) indirect taxes, farmers' subsidies, and debt interest 
E) property taxes and sales taxes. B

Question 2

Expansionary fiscal policy

Accepted Answer

A) increases long- run aggregate supply. 
B) decreases aggregate demand. 
C) increases aggregate demand. 
D) increases short- run aggregate supply. 
E) A, C, and D are correct. 
A) increases long- run aggregate supply. 
B) decreases aggregate demand. 
C) increases aggregate demand. 
D) increases short- run aggregate supply. 
E) A, C, and D are correct. C

Question 3

Suppose the tax rate on interest income is 25 percent, the real interest rate is 4 percent, and the inflation rate is 4 percent.The real after- tax interest rate is

Accepted Answer

A) - 0.5 percent. 
B) 2.0 percent. 
C) 4.0 percent. 
D) 3.5 percent. 
E) 0.5 percent. 
A) - 0.5 percent. 
B) 2.0 percent. 
C) 4.0 percent. 
D) 3.5 percent. 
E) 0.5 percent. B

Question 4

A cyclical deficit occurs when

Accepted Answer

A) there is a deficit due to the fact real GDP is less than potential GDP. 
B) government outlays are greater than revenues. 
C) there is a deficit due to the fact real GDP is greater than potential GDP. 
D) there is a deficit even when real GDP equals potential GDP. 
E) government outlays are less than revenues. 
A) there is a deficit due to the fact real GDP is less than potential GDP. 
B) government outlays are greater than revenues. 
C) there is a deficit due to the fact real GDP is greater than potential GDP. 
D) there is a deficit even when real GDP equals potential GDP. 
E) government outlays are less than revenues.

Question 5

If the economy has a structural deficit of $25 billion and a cyclical deficit of $75, we can conclude that the current budget deficit is _______ billion.

Accepted Answer

A) $125 
B) $50 
C) $75 
D) $100 
E) $25 
A) $125 
B) $50 
C) $75 
D) $100 
E) $25

Question 6

Consider all the effects on fiscal policy.A cut in the tax on capital income

Accepted Answer

A) shifts the AD curve rightward. 
B) shifts the LAS curve rightward. 
C) shifts the SAS curve rightward. 
D) all of the above 
E) only B and C 
A) shifts the AD curve rightward. 
B) shifts the LAS curve rightward. 
C) shifts the SAS curve rightward. 
D) all of the above 
E) only B and C

Question 7

The Laffer Curve has been criticized by mainstream economists because

Accepted Answer

A) tax cuts are just spent, not saved as predicted by the theory. 
B) empirically, tax cuts have not led to higher tax revenues. 
C) there is no theoretical possibility of higher tax rates leading to lower tax revenues. 
D) savers look only at real interest rates, not nominal interest rates. 
E) higher tax rates do not create negative incentive effects. 
A) tax cuts are just spent, not saved as predicted by the theory. 
B) empirically, tax cuts have not led to higher tax revenues. 
C) there is no theoretical possibility of higher tax rates leading to lower tax revenues. 
D) savers look only at real interest rates, not nominal interest rates. 
E) higher tax rates do not create negative incentive effects.

Question 8

A tax cut on capital income

Accepted Answer

A) does not affect potential GDP because the interest rate affects aggregate expenditure only. 
B) increases potential GDP because the supply of loanable funds increases. 
C) does not affect potential GDP because it has no impact on the supply of labour. 
D) increases potential GDP because households have more disposable income to spend. 
E) increases potential GDP because workers have greater incentives to work. 
A) does not affect potential GDP because the interest rate affects aggregate expenditure only. 
B) increases potential GDP because the supply of loanable funds increases. 
C) does not affect potential GDP because it has no impact on the supply of labour. 
D) increases potential GDP because households have more disposable income to spend. 
E) increases potential GDP because workers have greater incentives to work.

Question 9

The difference between the before- tax and after- tax rates is the

Accepted Answer

A) tax wedge. 
B) taxation penalty. 
C) deadweight loss. 
D) tax plug. 
E) deadweight gain. 
A) tax wedge. 
B) taxation penalty. 
C) deadweight loss. 
D) tax plug. 
E) deadweight gain.

Question 10

If real GDP is less than potential GDP, which of the following fiscal policies would increase real GDP?

Accepted Answer

A) a decrease in taxes 
B) an increase in government expenditures 
C) a fall in the interest rate 
D) Both A and B are correct 
E) A, B, and C are correct 
A) a decrease in taxes 
B) an increase in government expenditures 
C) a fall in the interest rate 
D) Both A and B are correct 
E) A, B, and C are correct

Question 11

The structural deficit is the deficit

Accepted Answer

A) that would occur at potential GDP. 
B) that would occur at the trough of the business cycle. 
C) in an expansion. 
D) in a recession. 
E) caused by the business cycle. 
A) that would occur at potential GDP. 
B) that would occur at the trough of the business cycle. 
C) in an expansion. 
D) in a recession. 
E) caused by the business cycle.

Question 12

An increase in the tax on capital income _______ the supply of loanable funds and _______ investment.

Accepted Answer

A) increases; increases 
B) decreases; increases 
C) increases; decreases 
D) decreases; decreases 
E) decreases the demand for loanable funds; decreases or increases 
A) increases; increases 
B) decreases; increases 
C) increases; decreases 
D) decreases; decreases 
E) decreases the demand for loanable funds; decreases or increases

Question 13

All of the following statements are true except

Accepted Answer

A) expenditures on goods and services have a downward trend. 
B) debt interest has been steadily increasing since 1960. 
C) the three components of government outlays are transfer payments, expenditures on goods and services, and debt interest. 
D) transfer payments decreased sharply during the 1990s. 
E) outlays increased steadily from 1971 through 1985. 
A) expenditures on goods and services have a downward trend. 
B) debt interest has been steadily increasing since 1960. 
C) the three components of government outlays are transfer payments, expenditures on goods and services, and debt interest. 
D) transfer payments decreased sharply during the 1990s. 
E) outlays increased steadily from 1971 through 1985.

Question 14

Currently the government of Ricardia has outlays equal to $100 billion, and a tax scheme that is related positively to real GDP by the following equation: Taxes = $25 billion + 0.1real GDP).What are autonomous taxes in Ricardia?

Accepted Answer

A) It depends on the level of real GDP. 
B) $250 billion 
C) 0.1 
D) $25 billion 
E) $2.5 billion 
A) It depends on the level of real GDP. 
B) $250 billion 
C) 0.1 
D) $25 billion 
E) $2.5 billion

Question 15

Consider the economy of NoTax, where the government expenditure multiplier is 2.5.If the government desires to shift the AD curve rightward by $5 billion, the correct increase in government expenditure is

Accepted Answer

A) $3 billion. 
B) $2 billion. 
C) $2.5 billion. 
D) $7.5 billion. 
E) $8.33 billion. 
A) $3 billion. 
B) $2 billion. 
C) $2.5 billion. 
D) $7.5 billion. 
E) $8.33 billion.

Question 16

The effect of a change in taxes is less than the same sized change in government expenditure because

Accepted Answer

A) some people do not pay their taxes. 
B) tax rates are the same regardless of income levels. 
C) the amount by which consumption initially changes is equal to MPS times the tax change. 
D) the amount by which consumption initially changes is equal to MPC times the tax change. 
E) changes in government expenditure do not directly affect consumption. 
A) some people do not pay their taxes. 
B) tax rates are the same regardless of income levels. 
C) the amount by which consumption initially changes is equal to MPS times the tax change. 
D) the amount by which consumption initially changes is equal to MPC times the tax change. 
E) changes in government expenditure do not directly affect consumption.

Question 17

If revenues exceed outlays, the government's budget balance is _______, and the government has a budget _______.

Accepted Answer

A) positive; deficit 
B) negative; surplus 
C) zero; deficit 
D) negative; deficit 
E) positive; surplus 
A) positive; deficit 
B) negative; surplus 
C) zero; deficit 
D) negative; deficit 
E) positive; surplus

Question 18

Use the figure below to answer the following questions.
   Figure 13.3.1
-Refer to Figure 13.3.1, which shows the outlays and revenues for the government of Pianoland.Automatic fiscal policy would be shown as a movement

Accepted Answer

A) from left to right along the revenues curve. 
B) from left to right along the outlays curve. 
C) from right to left along the outlays curve. 
D) from right to left along the revenues curve. 
E) all of the above 
A) from left to right along the revenues curve. 
B) from left to right along the outlays curve. 
C) from right to left along the outlays curve. 
D) from right to left along the revenues curve. 
E) all of the above

Question 19

At the end of 2011, the government of France's debt was €1,126 billion.€ is euro, the currency of France).In 2012, the government spent €1,067 billion and ended the year with a debt of €1,304 billion.How much did the government receive in tax revenue in 2012?

Accepted Answer

A) €1,482 billion 
B) €1,245 billion 
C) €178 billion 
D) €889 billion 
E) €1,125 billion 
A) €1,482 billion 
B) €1,245 billion 
C) €178 billion 
D) €889 billion 
E) €1,125 billion

Question 20

The largest source of revenues for the federal government is

Accepted Answer

A) transfer payments. 
B) corporate income taxes. 
C) expenditures on goods and services. 
D) indirect taxes such as the GST. 
E) personal income taxes. 
A) transfer payments. 
B) corporate income taxes. 
C) expenditures on goods and services. 
D) indirect taxes such as the GST. 
E) personal income taxes.

What are the main categories of the federal government outlays?

Expansionary fiscal policy

Suppose the tax rate on interest income is 25 percent, the real interest rate is 4 percent, and the inflation rate is 4 percent.The real after- tax interest rate is

A cyclical deficit occurs when

If the economy has a structural deficit of $25 billion and a cyclical deficit of $75, we can conclude that the current budget deficit is _______ billion.

Consider all the effects on fiscal policy.A cut in the tax on capital income

The Laffer Curve has been criticized by mainstream economists because

A tax cut on capital income

The difference between the before- tax and after- tax rates is the

If real GDP is less than potential GDP, which of the following fiscal policies would increase real GDP?

The structural deficit is the deficit

An increase in the tax on capital income _ the supply of loanable funds and _ investment.

All of the following statements are true except

Currently the government of Ricardia has outlays equal to $100 billion, and a tax scheme that is related positively to real GDP by the following equation: Taxes = $25 billion + 0.1real GDP).What are autonomous taxes in Ricardia?

Consider the economy of NoTax, where the government expenditure multiplier is 2.5.If the government desires to shift the AD curve rightward by $5 billion, the correct increase in government expenditure is

The effect of a change in taxes is less than the same sized change in government expenditure because

If revenues exceed outlays, the government's budget balance is _, and the government has a budget _.

Use the figure below to answer the following questions. Figure 13.3.1 -Refer to Figure 13.3.1, which shows the outlays and revenues for the government of Pianoland.Automatic fiscal policy would be shown as a movement

At the end of 2011, the government of France's debt was €1,126 billion.€ is euro, the currency of France).In 2012, the government spent €1,067 billion and ended the year with a debt of €1,304 billion.How much did the government receive in tax revenue in 2012?

The largest source of revenues for the federal government is

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Monetary Policy

International Trade Policy

Filters

Exam 13: Fiscal Policy

What are the main categories of the federal government outlays?

Expansionary fiscal policy

Suppose the tax rate on interest income is 25 percent, the real interest rate is 4 percent, and the inflation rate is 4 percent.The real after- tax interest rate is

A cyclical deficit occurs when

If the economy has a structural deficit of $25 billion and a cyclical deficit of $75, we can conclude that the current budget deficit is _______ billion.

Consider all the effects on fiscal policy.A cut in the tax on capital income

The Laffer Curve has been criticized by mainstream economists because

A tax cut on capital income

The difference between the before- tax and after- tax rates is the

If real GDP is less than potential GDP, which of the following fiscal policies would increase real GDP?

The structural deficit is the deficit

An increase in the tax on capital income _______ the supply of loanable funds and _______ investment.

All of the following statements are true except

Currently the government of Ricardia has outlays equal to $100 billion, and a tax scheme that is related positively to real GDP by the following equation: Taxes = $25 billion + 0.1real GDP).What are autonomous taxes in Ricardia?

Consider the economy of NoTax, where the government expenditure multiplier is 2.5.If the government desires to shift the AD curve rightward by $5 billion, the correct increase in government expenditure is

The effect of a change in taxes is less than the same sized change in government expenditure because

If revenues exceed outlays, the government's budget balance is _______, and the government has a budget _______.

Use the figure below to answer the following questions. Figure 13.3.1 -Refer to Figure 13.3.1, which shows the outlays and revenues for the government of Pianoland.Automatic fiscal policy would be shown as a movement

At the end of 2011, the government of France's debt was €1,126 billion.€ is euro, the currency of France).In 2012, the government spent €1,067 billion and ended the year with a debt of €1,304 billion.How much did the government receive in tax revenue in 2012?

The largest source of revenues for the federal government is

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Monetary Policy

International Trade Policy

Filters

An increase in the tax on capital income _ the supply of loanable funds and _ investment.

If revenues exceed outlays, the government's budget balance is _, and the government has a budget _.