Question 1

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

Question 2

Tax revenues equal the (average)tax rate multiplied by the tax base.

Accepted Answer

A) True 
 B)False

Question 3

Define the term budget deficit (as it applies to the federal government)and describe the difference between a cyclical deficit and a structural deficit.Provide a hypothetical numerical example to help support your answer.

Accepted Answer

A federal budget deficit occurs when gov

Question 4

Suppose Congress decreases income taxes.This is an example of

Accepted Answer

A)  expansionary fiscal policy. 
B)  expansionary monetary policy. 
C)  contractionary fiscal policy. 
D)  contractionary monetary policy. 
A)  expansionary fiscal policy. 
B)  expansionary monetary policy. 
C)  contractionary fiscal policy. 
D)  contractionary monetary policy.

Question 5

An example of automatic fiscal policy is

Accepted Answer

A)  the unemployed automatically become eligible for unemployment benefits when they lose their jobs in a recession. 
B)  when interest rates automatically fall in a recession. 
C)  Congress passes a law during a recession that automatically extends unemployment benefits for those whose benefits will soon expire. 
D)  a and b 
E)  a,b and c 
A)  the unemployed automatically become eligible for unemployment benefits when they lose their jobs in a recession. 
B)  when interest rates automatically fall in a recession. 
C)  Congress passes a law during a recession that automatically extends unemployment benefits for those whose benefits will soon expire. 
D)  a and b 
E)  a,b and c

Question 6

Suppose that in a certain nation the flat income tax rate of 30 percent rises to 35 percent and as a result the tax base falls from $400 billion to $375 billion.As a result,tax 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 7

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

Accepted Answer

A)  increase. 
B)  decrease. 
C)  will not change. 
D)  immediately drop to zero. 
A)  increase. 
B)  decrease. 
C)  will not change. 
D)  immediately drop to zero.

Question 8

-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 9

The AD curve shifts to the right with an increase in taxes or a decrease in government purchases.

Accepted Answer

A) True 
 B)False

Question 10

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 11

The federal budget is balanced and the economy is on the upward-sloping portion of the Laffer curve.Then,tax rates are cut and government purchases are increased.Is a budget deficit inevitable?

Accepted Answer

A)  No,because a cut in tax rates (on the upward-sloping portion of the Laffer curve)increases tax revenues,and if the increase in tax revenues equals the increase in government purchases there is no deficit. 
B)  Yes,because a cut in tax rates (on the upward-sloping portion of the Laffer curve)lowers tax revenues. 
C)  No,because a cut in tax rates (on the upward-sloping portion of the Laffer curve)decreases tax revenues,and if the decrease in tax revenues is less than the increase in government purchases there is no deficit. 
D)  Yes,because a cut in tax rates (on the upward-sloping portion of the Laffer curve)raises interest rates,and higher interest rates discourage investment spending. 
A)  No,because a cut in tax rates (on the upward-sloping portion of the Laffer curve)increases tax revenues,and if the increase in tax revenues equals the increase in government purchases there is no deficit. 
B)  Yes,because a cut in tax rates (on the upward-sloping portion of the Laffer curve)lowers tax revenues. 
C)  No,because a cut in tax rates (on the upward-sloping portion of the Laffer curve)decreases tax revenues,and if the decrease in tax revenues is less than the increase in government purchases there is no deficit. 
D)  Yes,because a cut in tax rates (on the upward-sloping portion of the Laffer curve)raises interest rates,and higher interest rates discourage investment spending.

Question 12

An example of contractionary fiscal policy is

Accepted Answer

A)  increasing government spending. 
B)  increasing taxes. 
C)  decreasing government spending. 
D)  decreasing taxes. 
E)  b and c 
A)  increasing government spending. 
B)  increasing taxes. 
C)  decreasing government spending. 
D)  decreasing taxes. 
E)  b and c

Question 13

Suppose aggregate demand is too high to bring about the Natural Real GDP level.A Keynesian policy prescription would call for a(n)_____________________ to close this inflationary gap.

Accepted Answer

A)  increase in government spending 
B)  decrease in government spending 
C)  increase in taxes 
D)  decrease in taxes 
E)  b or c 
A)  increase in government spending 
B)  decrease in government spending 
C)  increase in taxes 
D)  decrease in taxes 
E)  b or c

Question 14

Supply-side economists believe reductions in tax rates can

Accepted Answer

A)  shift the aggregate demand curve to the left. 
B)  shift the short run aggregate supply curve to the left. 
C)  increase output and lower prices. 
D)  decrease output and lower prices. 
A)  shift the aggregate demand curve to the left. 
B)  shift the short run aggregate supply curve to the left. 
C)  increase output and lower prices. 
D)  decrease output and lower prices.

Question 15

Suppose the economy is in a recessionary gap.If government expenditures are currently $700 billion and tax revenues are currently $450 billion,the (total)budget deficit is _____________.Assume that economists estimate that if the economy were operating at full employment then government expenditures would be $600 billion and tax revenues would be $500 billion.The structural deficit is _________________ and the cyclical deficit is _______________.

Accepted Answer

A)  $1.15 trillion; $1.1 trillion; $100 billion 
B)  $400 billion; $300 billion; $100 billion 
C)  $400 billion; $100 billion; $300 billion 
D)  $250 billion; $100 billion; $150 billion 
A)  $1.15 trillion; $1.1 trillion; $100 billion 
B)  $400 billion; $300 billion; $100 billion 
C)  $400 billion; $100 billion; $300 billion 
D)  $250 billion; $100 billion; $150 billion

Question 16

Buchanan and Wagner assert that there is a political bias toward contractionary fiscal policy and not expansionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 17

An example of contractionary fiscal policy is

Accepted Answer

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

Question 18

List and describe three of the five different lags that can occur which may impede the effectiveness of the use of fiscal policy.

Accepted Answer

Data lag - The time it takes for policym

Question 19

The distinctive feature of a progressive tax is that the dollar value of taxes paid rises as income rises.

Accepted Answer

A) True 
 B)False

Question 20

Fiscal policy refers to

Accepted Answer

A)  efforts to balance a government's budget. 
B)  changes in the money supply to achieve particular economic goals. 
C)  changes in government expenditures and taxation to achieve particular economic goals. 
D)  the change in private expenditures that occurs as a consequence of changes in government spending. 
A)  efforts to balance a government's budget. 
B)  changes in the money supply to achieve particular economic goals. 
C)  changes in government expenditures and taxation to achieve particular economic goals. 
D)  the change in private expenditures that occurs as a consequence of changes in government spending.

Exam 11: Monopolistic Competition, oligopoly, and Game Theory

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

Tax revenues equal the (average)tax rate multiplied by the tax base.

Define the term budget deficit (as it applies to the federal government)and describe the difference between a cyclical deficit and a structural deficit.Provide a hypothetical numerical example to help support your answer.

Suppose Congress decreases income taxes.This is an example of

An example of automatic fiscal policy is

Suppose that in a certain nation the flat income tax rate of 30 percent rises to 35 percent and as a result the tax base falls from $400 billion to $375 billion.As a result,tax revenues __________,indicating the nation is on the __________ portion of its Laffer curve.

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

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

The AD curve shifts to the right with an increase in taxes or a decrease in government purchases.

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

The federal budget is balanced and the economy is on the upward-sloping portion of the Laffer curve.Then,tax rates are cut and government purchases are increased.Is a budget deficit inevitable?

An example of contractionary fiscal policy is

Suppose aggregate demand is too high to bring about the Natural Real GDP level.A Keynesian policy prescription would call for a(n)_____________________ to close this inflationary gap.

Supply-side economists believe reductions in tax rates can

Buchanan and Wagner assert that there is a political bias toward contractionary fiscal policy and not expansionary fiscal policy.

An example of contractionary fiscal policy is

List and describe three of the five different lags that can occur which may impede the effectiveness of the use of fiscal policy.

The distinctive feature of a progressive tax is that the dollar value of taxes paid rises as income rises.

Fiscal policy refers to

What Economics Is About

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

Suppose that in a certain nation the flat income tax rate of 30 percent rises to 35 percent and as a result the tax base falls from $400 billion to $375 billion.As a result,tax revenues ,indicating the nation is on the portion of its Laffer curve.