Question 1

A major benefit of automatic stabilizers is that they:

Accepted Answer

A)  guarantee a balanced budget over the course of the business cycle. 
B)  have a tendency to reduce the national debt. 
C)  help increase recessionary gaps in the economy. 
D)  moderate the effect of fluctuations in the business cycle. 
E)  require legislative review by Congress before they can be implemented. 
A)  guarantee a balanced budget over the course of the business cycle. 
B)  have a tendency to reduce the national debt. 
C)  help increase recessionary gaps in the economy. 
D)  moderate the effect of fluctuations in the business cycle. 
E)  require legislative review by Congress before they can be implemented.

Question 2

Under a _____ structure, the marginal income tax rate rises and the average tax rate decreases as personal income falls.

Accepted Answer

A)  value added tax 
B)  sin tax 
C)  progressive tax 
D)  regressive tax 
E)  lumpsum tax 
A)  value added tax 
B)  sin tax 
C)  progressive tax 
D)  regressive tax 
E)  lumpsum tax

Question 3

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 4

The figure given below depicts the macroeconomic equilibrium in a country.?Figure 11.3
  
-Refer to Figure 11.3. Assume that the increase in aggregate demand from AD₁ to AD₂ was the result of government spending that was financed by borrowing. Assuming that the Ricardian equivalence holds and people expect taxes to rise in future, the equilibrium income will be:

Accepted Answer

A)  $800. 
B)  less than $500. 
C)  more than $800. 
D)  less than $700. 
E)  $700. 
A)  $800. 
B)  less than $500. 
C)  more than $800. 
D)  less than $700. 
E)  $700.

Question 5

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

Accepted Answer

A)  Personal income tax 
B)  Sales tax 
C)  Excise duty 
D)  Import tariff 
E)  Value-added tax 
A)  Personal income tax 
B)  Sales tax 
C)  Excise duty 
D)  Import tariff 
E)  Value-added tax

Question 6

A decrease in federal income tax rates is an example of fiscal policy that affects GDP through consumption adjustments.

Accepted Answer

A) True 
 B)False

Question 7

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 8

The higher the level of inflation, the stronger the impact of reductions in the personal income tax on real GDP .

Accepted Answer

A) True 
 B)False

Question 9

If the government wants to close a GDP gap, it should:

Accepted Answer

A)  borrow funds from the public by issuing bonds. 
B)  lower taxes and raise government spending. 
C)  lower government spending on social security. 
D)  raise both direct and indirect tax rates. 
E)  adopt contractionary fiscal policies to control inflation. 
A)  borrow funds from the public by issuing bonds. 
B)  lower taxes and raise government spending. 
C)  lower government spending on social security. 
D)  raise both direct and indirect tax rates. 
E)  adopt contractionary fiscal policies to control inflation.

Question 10

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 in 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 in 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.

Question 11

A value-added tax is a tax on consumption and not on personal income.

Accepted Answer

A) True 
 B)False

Question 12

Calculate the government spending multiplier if, an increase in government spending by $5 million increases real GDP by $25 million.

Accepted Answer

A)  0.2 
B)  0.5 
C)  2 
D)  5 
E)  6 
A)  0.2 
B)  0.5 
C)  2 
D)  5 
E)  6

Question 13

If Joe earns $80,000 per year and pays $20,000 in taxes, while Moe earns $100,000 and pays $22,000 in taxes, their tax system would best be described as:

Accepted Answer

A)  progressive. 
B)  proportional. 
C)  regressive. 
D)  discretionary. 
E)  lump-sum. 
A)  progressive. 
B)  proportional. 
C)  regressive. 
D)  discretionary. 
E)  lump-sum.

Question 14

Government expenditures on goods and services have an indirect impact on the aggregate demand, while taxes have a direct impact.

Accepted Answer

A) True 
 B)False

Question 15

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 16

If crowding out exists, the expansionary effect of government spending will be:

Accepted Answer

A)  smaller than intended. 
B)  negative. 
C)  infinite. 
D)  larger than intended. 
E)  zero. 
A)  smaller than intended. 
B)  negative. 
C)  infinite. 
D)  larger than intended. 
E)  zero.

Question 17

Automatic stabilizers act to moderate business cycles primarily through the personal income and consumption channels.

Accepted Answer

A) True 
 B)False

Question 18

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 19

In the late 1990s, debt-financed government spending decreased in Mexico. Following this decrease, consumption spending increased. Ricardian equivalence would explain this increase in consumption as the result of:

Accepted Answer

A)  people's expectation of higher future taxes required to pay off government debt. 
B)  people's expectation of lower future taxes that induce them to save less. 
C)  automatic stabilization of the economy. 
D)  the crowding out effect. 
E)  an increase in current household disposable income. 
A)  people's expectation of higher future taxes required to pay off government debt. 
B)  people's expectation of lower future taxes that induce them to save less. 
C)  automatic stabilization of the economy. 
D)  the crowding out effect. 
E)  an increase in current household disposable income.

Question 20

The GDP gap is:

Accepted Answer

A)  the product of the potential real GDP and the equilibrium level of real GDP. 
B)  the distance between the current level of real gross domestic product and full employment real GDP. 
C)  the difference between potential real GDP and the equilibrium level of real GDP. 
D)  the difference between the present value of all of government's projected financial obligations and the present value of all projected future tax and other receipts. 
E)  the difference between the actual output of an economy and its potential output. 
A)  the product of the potential real GDP and the equilibrium level of real GDP. 
B)  the distance between the current level of real gross domestic product and full employment real GDP. 
C)  the difference between potential real GDP and the equilibrium level of real GDP. 
D)  the difference between the present value of all of government's projected financial obligations and the present value of all projected future tax and other receipts. 
E)  the difference between the actual output of an economy and its potential output.

A major benefit of automatic stabilizers is that they:

Under a _____ structure, the marginal income tax rate rises and the average tax rate decreases as personal income falls.

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

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

A decrease in federal income tax rates is an example of fiscal policy that affects GDP through consumption adjustments.

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

The higher the level of inflation, the stronger the impact of reductions in the personal income tax on real GDP .

If the government wants to close a GDP gap, it should:

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

A value-added tax is a tax on consumption and not on personal income.

Calculate the government spending multiplier if, an increase in government spending by $5 million increases real GDP by $25 million.

If Joe earns $80,000 per year and pays $20,000 in taxes, while Moe earns $100,000 and pays $22,000 in taxes, their tax system would best be described as:

Government expenditures on goods and services have an indirect impact on the aggregate demand, while taxes have a direct impact.

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.

If crowding out exists, the expansionary effect of government spending will be:

Automatic stabilizers act to moderate business cycles primarily through the personal income and consumption channels.

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

In the late 1990s, debt-financed government spending decreased in Mexico. Following this decrease, consumption spending increased. Ricardian equivalence would explain this increase in consumption as the result of:

The GDP gap is:

The Wealth of Nations: Ownership and Economic Freedom

Scarcity and Opportunity Costs

The Market and Price System

The Aggregate Economy

National Income Accounting

An Introduction to the Foreign Exchapterange 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

Exchapterange Rates and Financial Links Between Countries

Filters

Exam 11: Fiscal Policy

A major benefit of automatic stabilizers is that they:

Under a _____ structure, the marginal income tax rate rises and the average tax rate decreases as personal income falls.

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

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

A decrease in federal income tax rates is an example of fiscal policy that affects GDP through consumption adjustments.

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

The higher the level of inflation, the stronger the impact of reductions in the personal income tax on real GDP .

If the government wants to close a GDP gap, it should:

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

A value-added tax is a tax on consumption and not on personal income.

Calculate the government spending multiplier if, an increase in government spending by $5 million increases real GDP by $25 million.

If Joe earns $80,000 per year and pays $20,000 in taxes, while Moe earns $100,000 and pays $22,000 in taxes, their tax system would best be described as:

Government expenditures on goods and services have an indirect impact on the aggregate demand, while taxes have a direct impact.

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.

If crowding out exists, the expansionary effect of government spending will be:

Automatic stabilizers act to moderate business cycles primarily through the personal income and consumption channels.

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

In the late 1990s, debt-financed government spending decreased in Mexico. Following this decrease, consumption spending increased. Ricardian equivalence would explain this increase in consumption as the result of:

The GDP gap is:

The Wealth of Nations: Ownership and Economic Freedom

Scarcity and Opportunity Costs

The Market and Price System

The Aggregate Economy

National Income Accounting

An Introduction to the Foreign Exchapterange 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

Exchapterange Rates and Financial Links Between Countries

Filters