Question 1

When the government decides to increase income taxes, this is an example of contractionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 2

To eliminate a recessionary gap, Keynesian theory indicates that government should

Accepted Answer

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

Question 3

Suppose the economy is at a position below its institutional production possibilities frontier. To improve this situation, Keynesian economists might propose that government __________ taxes, which will cause the aggregate demand curve to shift to the __________ and Real GDP will __________.

Accepted Answer

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

Question 4

If the economy is on the downward-sloping portion of the Laffer curve, a(an) __________ in tax rates will __________ tax revenues.

Accepted Answer

A) decrease; reduce 
B) increase; raise 
C) decrease; raise 
D) decrease; not change 
E) increase; not change 
A) decrease; reduce 
B) increase; raise 
C) decrease; raise 
D) decrease; not change 
E) increase; not change

Question 5

If an individual pays an additional $0.30 in taxes as a result of a $1.00 increase in income, then that individual must have a(n) __________ tax rate of 30 percent.

Accepted Answer

A) average 
B) fixed 
C) total 
D) marginal 
A) average 
B) fixed 
C) total 
D) marginal

Question 6

If an economist recommends that the government reduce the tax rate in order to increase tax revenues (based on the Laffer curve), she is implicitly assuming that the economy is currently operating at a point

Accepted Answer

A) inside the Laffer curve. 
B) outside the Laffer curve. 
C) on the upward-sloping portion of the Laffer curve. 
D) on the downward-sloping portion of the Laffer curve. 
E) where tax revenues are maximized. 
A) inside the Laffer curve. 
B) outside the Laffer curve. 
C) on the upward-sloping portion of the Laffer curve. 
D) on the downward-sloping portion of the Laffer curve. 
E) where tax revenues are maximized.

Question 7

Some economists believe that higher marginal income tax rates __________ the incentive to work and thus shift the __________.

Accepted Answer

A) increase; AD curve to the right 
B) increase; SRAS curve to the right 
C) increase; SRAS curve to the left 
D) decrease; AD curve to the left 
E) decrease; SRAS curve to the left 
A) increase; AD curve to the right 
B) increase; SRAS curve to the right 
C) increase; SRAS curve to the left 
D) decrease; AD curve to the left 
E) decrease; SRAS curve to the left

Exam 11: Fiscal Policy and the Federal Budget

When the government decides to increase income taxes, this is an example of contractionary fiscal policy.

To eliminate a recessionary gap, Keynesian theory indicates that government should

Suppose the economy is at a position below its institutional production possibilities frontier. To improve this situation, Keynesian economists might propose that government __________ taxes, which will cause the aggregate demand curve to shift to the __________ and Real GDP will __________.

If the economy is on the downward-sloping portion of the Laffer curve, a(an) __________ in tax rates will __________ tax revenues.

If an individual pays an additional $0.30 in taxes as a result of a $1.00 increase in income, then that individual must have a(n) __________ tax rate of 30 percent.

If an economist recommends that the government reduce the tax rate in order to increase tax revenues (based on the Laffer curve), she is implicitly assuming that the economy is currently operating at a point

Some economists believe that higher marginal income tax rates __________ the incentive to work and thus shift the __________.

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

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth Resources Technology Ideas and Institutions

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice 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

The Economic Case for and Against Government Five Topics Considered

Stocks Bonds Futures and Options

Filters

Suppose the economy is at a position below its institutional production possibilities frontier. To improve this situation, Keynesian economists might propose that government taxes, which will cause the aggregate demand curve to shift to the and Real GDP will __.

If the economy is on the downward-sloping portion of the Laffer curve, a(an) in tax rates will tax revenues.

Some economists believe that higher marginal income tax rates the incentive to work and thus shift the .