Question 1

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 2

​
​Exhibit 11-6
  
-Refer to Exhibit 11-6. The economy is currently in short-run equilibrium producing Q1. In this situation, Keynesian economists would most likely propose

Accepted Answer

A) an increase in government purchases. 
B) a decrease in government purchases. 
C) an increase in taxes. 
D) a or c 
E) b or c 
A) an increase in government purchases. 
B) a decrease in government purchases. 
C) an increase in taxes. 
D) a or c 
E) b or c

Question 3

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 4

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 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

Keynesians

Accepted Answer

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

Question 7

At a taxable income of $120,000 Adam's income tax is $30,500. When his taxable income rises to $130,000 his income tax is $34,500. Based on this information, Adam's marginal tax rate is _____________ percent and his new average tax rate is ____________ percent.

Accepted Answer

A) 4; 26.5 
B) 26.5; 40 
C) 40; 26.5 
D) 18; 24.0 
E) 21; 23.3 
A) 4; 26.5 
B) 26.5; 40 
C) 40; 26.5 
D) 18; 24.0 
E) 21; 23.3

Question 8

The U.S. income tax is currently a __________ tax.

Accepted Answer

A) progressive 
B) proportional 
C) regressive 
D) proactive 
A) progressive 
B) proportional 
C) regressive 
D) proactive

Question 9

There is zero crowding out and the federal budget is balanced at the time government purchases are increased. It follows that the __________ curve shifts to the __________, and in the short run both the price level and Real GDP __________.

Accepted Answer

A) AD; left; rise 
B) AD; right; fall 
C) AD; right; rise 
D) AD; left; fall 
E) SRAS; right; rise 
A) AD; left; rise 
B) AD; right; fall 
C) AD; right; rise 
D) AD; left; fall 
E) SRAS; right; rise

Question 10

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 11

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 12

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). The value added by the farmer is ______________. If the government imposes a VAT rate of 10 percent, the farmer must pay ___________ in VAT tax and will need to raise the price he charges the miller to _______________.

Accepted Answer

A) $0.60; $0.06; $0.66 
B) $0.80; $0.08; $0.88 
C) $1.40; $0.14; $1.54 
D) $0.60; $0.60; $1.20 
A) $0.60; $0.06; $0.66 
B) $0.80; $0.08; $0.88 
C) $1.40; $0.14; $1.54 
D) $0.60; $0.60; $1.20

Question 13

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 14

Which four federal taxes make up the bulk of federal government tax revenues?

Accepted Answer

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

Question 15

The United States currently has a progressive income tax structure.

Accepted Answer

A) True 
 B)False

Question 16

Fiscal policy refers to

Accepted Answer

A) changes in the amount of government expenditures and taxes to achieve particular economic objectives. 
B) changes in the composition of a given amount of government expenditures to achieve particular economic objectives. 
C) changes in interest rates initiated by government action. 
D) any change in government spending or taxes that has the intended effect of destabilizing the economy. 
A) changes in the amount of government expenditures and taxes to achieve particular economic objectives. 
B) changes in the composition of a given amount of government expenditures to achieve particular economic objectives. 
C) changes in interest rates initiated by government action. 
D) any change in government spending or taxes that has the intended effect of destabilizing the economy.

Question 17

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 18

The effectiveness lag is the time between

Accepted Answer

A) the implementation of a policy and when the impact of the policy is felt. 
B) the enactment of a policy and the implementation of the policy. 
C) realizing a policy is needed and enacting the policy. 
D) the occurrence of an event and policymakers realizing the event has occurred. 
A) the implementation of a policy and when the impact of the policy is felt. 
B) the enactment of a policy and the implementation of the policy. 
C) realizing a policy is needed and enacting the policy. 
D) the occurrence of an event and policymakers realizing the event has occurred.

Question 19

A tax rate increase always leads to an increase in tax revenue for the government.

Accepted Answer

A) True 
 B)False

Question 20

Crowding out results when an increase in government spending leads to declines in consumption, investment, and/or net exports.

Accepted Answer

A) True 
 B)False

Exam 11: Fiscal Policy and the Federal Budget

The Laffer curve illustrates that

​ ​Exhibit 11-6 -Refer to Exhibit 11-6. The economy is currently in short-run equilibrium producing Q1. In this situation, Keynesian economists would most likely propose

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 ______________________.

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.

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.

Keynesians

At a taxable income of $120,000 Adam's income tax is $30,500. When his taxable income rises to $130,000 his income tax is $34,500. Based on this information, Adam's marginal tax rate is _____________ percent and his new average tax rate is ____________ percent.

The U.S. income tax is currently a __________ tax.

There is zero crowding out and the federal budget is balanced at the time government purchases are increased. It follows that the __________ curve shifts to the __________, and in the short run both the price level and Real GDP __________.

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

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

Which of the following illustrates the effectiveness lag?

Which four federal taxes make up the bulk of federal government tax revenues?

The United States currently has a progressive income tax structure.

Fiscal policy refers to

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

The effectiveness lag is the time between

A tax rate increase always leads to an increase in tax revenue for the government.

Crowding out results when an increase in government spending leads to declines in consumption, investment, and/or net exports.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II 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

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Money and the Economy

Monetary Policy

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

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The Economic Case for and Against Government Five Topics Considered

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Exhibit 11-6 -Refer to Exhibit 11-6. The economy is currently in short-run equilibrium producing Q₁. In this situation, Keynesian economists would most likely propose

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 __________.

At a taxable income of $120,000 Adam's income tax is $30,500. When his taxable income rises to $130,000 his income tax is $34,500. Based on this information, Adam's marginal tax rate is _ percent and his new average tax rate is percent.

There is zero crowding out and the federal budget is balanced at the time government purchases are increased. It follows that the curve shifts to the , and in the short run both the price level and Real GDP __.

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