Question 1

Which of the following taxes are more easier to collect in industrial countries than in developing countries?

Accepted Answer

A)  Sales tax 
B)  Capital gains tax 
C)  Personal income tax 
D)  Business tax 
E)  Export tax 
A)  Sales tax 
B)  Capital gains tax 
C)  Personal income tax 
D)  Business tax 
E)  Export tax

Question 2

Which of the following is true about automatic stabilizers?

Accepted Answer

A)  Automatic stabilizers are a part of discretionary fiscal policy. 
B)  The federal funds rate is an example of an automatic stabilizer. 
C)  An automatic stabilizer is any program that responds to fluctuations in the business cycle in a way that moderates the effects of those fluctuations. 
D)  Any kind of trade policy adopted by the government will be considered as an automatic stabilizer. 
E)  When income rises, automatic stabilizers increase/boost spending. 
A)  Automatic stabilizers are a part of discretionary fiscal policy. 
B)  The federal funds rate is an example of an automatic stabilizer. 
C)  An automatic stabilizer is any program that responds to fluctuations in the business cycle in a way that moderates the effects of those fluctuations. 
D)  Any kind of trade policy adopted by the government will be considered as an automatic stabilizer. 
E)  When income rises, automatic stabilizers increase/boost spending.

Question 3

An increase in deficit spending tends to raise interest rates, thereby resulting in a multiplier effect that is higher than would be associated with an equivalent increase in consumption spending.

Accepted Answer

A) True 
 B)False

Question 4

The sum of the unemployment rate and the inflation rate is known as:

Accepted Answer

A)  the macroeconomic index. 
B)  the mortality rate. 
C)  the market index. 
D)  the misery index. 
E)  a coincident indicator. 
A)  the macroeconomic index. 
B)  the mortality rate. 
C)  the market index. 
D)  the misery index. 
E)  a coincident indicator.

Question 5

Higher taxes affect real GDP indirectly through both the consumption channel and the output supply channel.

Accepted Answer

A) True 
 B)False

Question 6

If the price level falls as real GDP decreases, the multiplier effects of any given change in aggregate expenditures are smaller than they would be if the price level remained constant.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is a form of a direct tax?

Accepted Answer

A)  Personal income taxes 
B)  Sales taxes 
C)  Excise taxes 
D)  Import tariffs 
E)  Value-added taxes 
A)  Personal income taxes 
B)  Sales taxes 
C)  Excise taxes 
D)  Import tariffs 
E)  Value-added taxes

Question 8

Assume that French budget deficits have raised the French prime interest rate relative to the U.S. T-bill rate. As a result, we would expect the U.S. dollar to depreciate and U.S. net exports to rise.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is an example of a transfer payment by the government?

Accepted Answer

A)  The government provides unemployment benefits to its citizens 
B)  The local government invests in building a community center. 
C)  The government raises funds in order to build bridges and roads. 
D)  The government provides healthcare to its citizens at a subsidized price. 
E)  The government provides concessional rates to senior citizens who use public transport. 
A)  The government provides unemployment benefits to its citizens 
B)  The local government invests in building a community center. 
C)  The government raises funds in order to build bridges and roads. 
D)  The government provides healthcare to its citizens at a subsidized price. 
E)  The government provides concessional rates to senior citizens who use public transport.

Question 10

Assume that European interest rates fall as a result of decreased deficit spending by the governments of the European Union. We would expect all of the following, except:

Accepted Answer

A)  a depreciation of the euro with respect to the U.S. dollar. 
B)  increased European demand for American government securities. 
C)  a higher level of U.S. imports from Europe. 
D)  higher U.S. net exports to Europe. 
E)  higher French exports to the United States. 
A)  a depreciation of the euro with respect to the U.S. dollar. 
B)  increased European demand for American government securities. 
C)  a higher level of U.S. imports from Europe. 
D)  higher U.S. net exports to Europe. 
E)  higher French exports to the United States.

Question 11

Compared to the government in the typical industrial country, the government in the typical developing country:

Accepted Answer

A)  plays the same role in investment spending. 
B)  plays a larger role in investment spending. 
C)  plays a smaller role in investment spending. 
D)  plays no role in investment spending. 
E)  plays a more negative role in investment spending. 
A)  plays the same role in investment spending. 
B)  plays a larger role in investment spending. 
C)  plays a smaller role in investment spending. 
D)  plays no role in investment spending. 
E)  plays a more negative role in investment spending.

Question 12

Which of the following would not be considered an indirect tax?

Accepted Answer

A)  A value-added tax 
B)  A tax on wheat export 
C)  A tax on imported automobiles 
D)  A tax on the income of a computer manufacturer 
E)  A sales tax on cigarettes 
A)  A value-added tax 
B)  A tax on wheat export 
C)  A tax on imported automobiles 
D)  A tax on the income of a computer manufacturer 
E)  A sales tax on cigarettes

Question 13

If government spending in a country declines by $10 billion and, at the same time, taxes increase by an equal amount, what is the total effect in the economy?

Accepted Answer

A)  Equilibrium real GDP increases 
B)  Equilibrium real GDP decreases by $20 billion 
C)  Equilibrium real GDP is unchanged 
D)  Equilibrium real GDP decreases by more than $10 billion and less than $20 billion 
E)  Equilibrium real GDP decreases by more than $20 billion 
A)  Equilibrium real GDP increases 
B)  Equilibrium real GDP decreases by $20 billion 
C)  Equilibrium real GDP is unchanged 
D)  Equilibrium real GDP decreases by more than $10 billion and less than $20 billion 
E)  Equilibrium real GDP decreases by more than $20 billion

Question 14

When the government uses taxes and spending to affect national economy, it is engaging in:

Accepted Answer

A)  fiscal policy. 
B)  monetary policy. 
C)  interest rate policy. 
D)  trade policy. 
E)  exchange rate policy. 
A)  fiscal policy. 
B)  monetary policy. 
C)  interest rate policy. 
D)  trade policy. 
E)  exchange rate policy.

Question 15

The figure given below depicts the tax revenue for different tax rates applied by the government.
Figure 11.2
  
-Refer to Figure 11.2. If you were a member of the Congress that aims to increase tax revenue collections, what would you recommend if the current tax rate were 80 percent?

Accepted Answer

A)  Increasing the tax rate to 100 percent 
B)  Decreasing the tax rate to 30 percent 
C)  Decreasing the tax rate to 70 percent 
D)  Increasing the tax rate to 90 percent 
E)  Decreasing the tax rate to zero percent 
A)  Increasing the tax rate to 100 percent 
B)  Decreasing the tax rate to 30 percent 
C)  Decreasing the tax rate to 70 percent 
D)  Increasing the tax rate to 90 percent 
E)  Decreasing the tax rate to zero percent

Question 16

If fewer businesses offer new bonds to raise investment funds when government borrowing increases interest rates, this would be an example of:

Accepted Answer

A)  Ricardian equivalence. 
B)  overestimating the tax multiplier. 
C)  crowding out. 
D)  increased consumption. 
E)  the balanced-budget multiplier. 
A)  Ricardian equivalence. 
B)  overestimating the tax multiplier. 
C)  crowding out. 
D)  increased consumption. 
E)  the balanced-budget multiplier.

Question 17

Which of the following can be categorized under fiscal policy?

Accepted Answer

A)  Increase in money supply 
B)  Decrease in money supply 
C)  Increase in federal funds rate 
D)  Decrease in reserve requirement 
E)  Increase in tax rates 
A)  Increase in money supply 
B)  Decrease in money supply 
C)  Increase in federal funds rate 
D)  Decrease in reserve requirement 
E)  Increase in tax rates

Question 18

Increased domestic imports and higher international trade deficits are possible results of government surpluses.

Accepted Answer

A) True 
 B)False

Question 19

_____ refers to the changes in government spending and taxation that are aimed at achieving a policy goal.

Accepted Answer

A)  Discretionary monetary policy 
B)  Discretionary fiscal policy 
C)  Discretionary foreign trade policy 
D)  Discretionary exchange rate policy 
E)  Discretionary interest rate policy 
A)  Discretionary monetary policy 
B)  Discretionary fiscal policy 
C)  Discretionary foreign trade policy 
D)  Discretionary exchange rate policy 
E)  Discretionary interest rate policy

Question 20

A U.S. federal budget deficit that raises real interest rates is most likely to:

Accepted Answer

A)  lead to a depreciation of the dollar on the foreign exchange market. 
B)  encourage foreign investment in U.S. securities. 
C)  lead to an increase in exports. 
D)  lead to an appreciation of other currencies relative to the U.S. dollar. 
E)  discourage imports of foreign goods. 
A)  lead to a depreciation of the dollar on the foreign exchange market. 
B)  encourage foreign investment in U.S. securities. 
C)  lead to an increase in exports. 
D)  lead to an appreciation of other currencies relative to the U.S. dollar. 
E)  discourage imports of foreign goods.

Exam 11: Fiscal Policy

Which of the following taxes are more easier to collect in industrial countries than in developing countries?

Which of the following is true about automatic stabilizers?

An increase in deficit spending tends to raise interest rates, thereby resulting in a multiplier effect that is higher than would be associated with an equivalent increase in consumption spending.

The sum of the unemployment rate and the inflation rate is known as:

Higher taxes affect real GDP indirectly through both the consumption channel and the output supply channel.

If the price level falls as real GDP decreases, the multiplier effects of any given change in aggregate expenditures are smaller than they would be if the price level remained constant.

Which of the following is a form of a direct tax?

Assume that French budget deficits have raised the French prime interest rate relative to the U.S. T-bill rate. As a result, we would expect the U.S. dollar to depreciate and U.S. net exports to rise.

Which of the following is an example of a transfer payment by the government?

Assume that European interest rates fall as a result of decreased deficit spending by the governments of the European Union. We would expect all of the following, except:

Compared to the government in the typical industrial country, the government in the typical developing country:

Which of the following would not be considered an indirect tax?

If government spending in a country declines by $10 billion and, at the same time, taxes increase by an equal amount, what is the total effect in the economy?

When the government uses taxes and spending to affect national economy, it is engaging in:

The figure given below depicts the tax revenue for different tax rates applied by the government. Figure 11.2 -Refer to Figure 11.2. If you were a member of the Congress that aims to increase tax revenue collections, what would you recommend if the current tax rate were 80 percent?

If fewer businesses offer new bonds to raise investment funds when government borrowing increases interest rates, this would be an example of:

Which of the following can be categorized under fiscal policy?

Increased domestic imports and higher international trade deficits are possible results of government surpluses.

_____ refers to the changes in government spending and taxation that are aimed at achieving a policy goal.

A U.S. federal budget deficit that raises real interest rates is most likely to:

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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