Question 1

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

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 2

Exhibit 11-2
  
-Refer to Exhibit 11-2. Compare points A and B. Which of the following is true?

Accepted Answer

A) At A and B, the tax rates are the same, but tax revenues are different. 
B) At A tax rates are higher than at B, but tax revenues are the same at both points. 
C) At B tax rates are higher than at A, but tax revenues are the same at both points. 
D) none of the above 
A) At A and B, the tax rates are the same, but tax revenues are different. 
B) At A tax rates are higher than at B, but tax revenues are the same at both points. 
C) At B tax rates are higher than at A, but tax revenues are the same at both points. 
D) none of the above

Question 3

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

Accepted Answer

A) crowding out. 
B) lags. 
C) the position of the physical production possibilities frontier. 
D) a and b 
E) a, b, and c 
A) crowding out. 
B) lags. 
C) the position of the physical production possibilities frontier. 
D) a and b 
E) a, b, and c

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 11-1
  
-Refer to Exhibit 11-1. The economy is currently at point 1. Suppose the federal government increases purchases and there is no crowding out. As a result, the aggregate demand (AD) curve in the exhibit

Accepted Answer

A) maintains its present position at AD1. 
B) shifts rightward, ideally so that it goes through point 2. 
C) shifts rightward, ideally so that it goes beyond point 2. 
D) shifts leftward. 
E) ​does not shift, but the SRAS curve will shift rightward so that it goes through point 3. 
A) maintains its present position at AD1. 
B) shifts rightward, ideally so that it goes through point 2. 
C) shifts rightward, ideally so that it goes beyond point 2. 
D) shifts leftward. 
E) ​does not shift, but the SRAS curve will shift rightward so that it goes through point 3.

Question 6

A structural deficit is the part of the budget deficit that is a result of a downturn in economic activity.

Accepted Answer

A) True 
 B)False

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) 17% 
C) 20% 
D) 30% 
E) There is not enough information provided to answer this question. 
A) 15% 
B) 17% 
C) 20% 
D) 30% 
E) There is not enough information provided to answer this question.

Question 8

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 9

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,001st dollar of taxable income earned?

Accepted Answer

A) 17% 
B) 20% 
C) 25% 
D) 30% 
E) There is not enough information provided to answer this question. 
A) 17% 
B) 20% 
C) 25% 
D) 30% 
E) There is not enough information provided to answer this question.

Question 10

An expansionary fiscal policy will

Accepted Answer

A) always result in a budget deficit. 
B) always result in a budget surplus. 
C) sometimes result in a budget deficit. 
D) never result in a budget surplus. 
E) More information is necessary to answer this question. 
A) always result in a budget deficit. 
B) always result in a budget surplus. 
C) sometimes result in a budget deficit. 
D) never result in a budget surplus. 
E) More information is necessary to answer this question.

Question 11

Which of the following illustrates the wait-and-see 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 12

The AD curve shifts to the right with a __________ in government purchases (G) or a __________ in taxes.

Accepted Answer

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

Question 13

Suppose that in a certain nation the flat income tax rate of 40 percent is reduced to 35 percent and as a result the tax base rises from $400 billion to $600 billion. As a result, ax 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

Question 14

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 15

A subsidy is the same thing as a tax deduction

Accepted Answer

A) True 
 B)False

Question 16

A value-added tax (VAT) is a less visible form of a sales tax.

Accepted Answer

A) True 
 B)False

Question 17

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.

Accepted Answer

A) rise; less than 
B) rise; greater than 
C) rise; equal to 
D) fall; equal to 
E) none of the above 
A) rise; less than 
B) rise; greater than 
C) rise; equal to 
D) fall; equal to 
E) none of the above

Question 18

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 19

The AD curve shifts to the left with a __________ in government purchases (G) or a __________ in taxes.

Accepted Answer

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

Question 20

An example of expansionary fiscal policy is

Accepted Answer

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

Exam 11: Fiscal Policy and the Federal Budget

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

Exhibit 11-2 -Refer to Exhibit 11-2. Compare points A and B. Which of the following is true?

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

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

Exhibit 11-1 -Refer to Exhibit 11-1. The economy is currently at point 1. Suppose the federal government increases purchases and there is no crowding out. As a result, the aggregate demand (AD) curve in the exhibit

A structural deficit is the part of the budget deficit that is a result of a downturn in economic activity.

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

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?

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,001st dollar of taxable income earned?

An expansionary fiscal policy will

Which of the following illustrates the wait-and-see lag?

The AD curve shifts to the right with a __________ in government purchases (G) or a __________ in taxes.

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

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

A subsidy is the same thing as a tax deduction

A value-added tax (VAT) is a less visible form of a sales tax.

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.

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?

The AD curve shifts to the left with a __________ in government purchases (G) or a __________ in taxes.

An example of expansionary fiscal policy is

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The AD curve shifts to the right with a in government purchases (G) or a in taxes.

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

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.

The AD curve shifts to the left with a in government purchases (G) or a in taxes.