Question 1

A federal budget surplus occurs when government expenditures exceed tax revenues.

Accepted Answer

A) True 
 B)False

Question 2

An expansionary fiscal policy will

Accepted Answer

A) always result in a budget deficit. 
B) always result in a budget surplus. 
C) sometimes result in a budget deficit. 
D) never result in a budget surplus. 
E) More information is necessary to answer this question. 
A) always result in a budget deficit. 
B) always result in a budget surplus. 
C) sometimes result in a budget deficit. 
D) never result in a budget surplus. 
E) More information is necessary to answer this question.

Question 3

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 4

In 2013,the budget deficit in the United States was approximately

Accepted Answer

A) $9.7 billion 
B) $9 billion. 
C) $973 billion. 
D) $17 trillion. 
E) $97 billion. 
A) $9.7 billion 
B) $9 billion. 
C) $973 billion. 
D) $17 trillion. 
E) $97 billion.

Question 5

Crowding out suggests that

Accepted Answer

A) high taxes reduce both consumption and saving. 
B) increases in consumption are always at the expense of saving. 
C) increases in government spending may raise the interest rate,thereby reducing investment. 
D) increases in government spending will close a recessionary gap. 
A) high taxes reduce both consumption and saving. 
B) increases in consumption are always at the expense of saving. 
C) increases in government spending may raise the interest rate,thereby reducing investment. 
D) increases in government spending will close a recessionary gap.

Question 6

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 7

Which of the following is not an example of a "lag" that diminishes the potential impact of fiscal policy?

Accepted Answer

A) the data lag 
B) the recessionary lag 
C) the legislative lag 
D) the transmission lag 
E) None of the above;all are examples of such lags. 
A) the data lag 
B) the recessionary lag 
C) the legislative lag 
D) the transmission lag 
E) None of the above;all are examples of such lags.

Question 8

Taxable income rises by $1,500 and taxes rise by $435.What is the marginal tax rate?

Accepted Answer

A) 4 percent 
B) 29 percent 
C) 10 percent 
D) 30 percent 
E) 25 percent 
A) 4 percent 
B) 29 percent 
C) 10 percent 
D) 30 percent 
E) 25 percent

Question 9

A taxpayer pays __________ tax rate on additional income if the income tax structure is progressive,__________ tax rate on additional income if the income tax structure is proportional,and __________ tax rate on additional income if the income tax structure is regressive.

Accepted Answer

A) a higher;a lower;the same 
B) a higher;the same;a lower 
C) a lower;a higher;the same 
D) the same;a lower;a higher 
E) the same;a higher;a lower 
A) a higher;a lower;the same 
B) a higher;the same;a lower 
C) a lower;a higher;the same 
D) the same;a lower;a higher 
E) the same;a higher;a lower

Question 10

A subsidy is the same thing as a tax deduction

Accepted Answer

A) True 
 B)False

Question 11

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 12

Expansionary fiscal policy is ineffective if

Accepted Answer

A) there are idle resources in the economy. 
B) the MPC is less than 0.60. 
C) the government has a budget surplus. 
D) there is complete crowding out. 
E) a and d 
A) there are idle resources in the economy. 
B) the MPC is less than 0.60. 
C) the government has a budget surplus. 
D) there is complete crowding out. 
E) a and d

Question 13

​Exhibit 11-6  
-Elaine's taxable income increases by $1 and her tax payment increases by $0.28.Her marginal tax rate is

Accepted Answer

A) 72 percent. 
B) 28 percent. 
C) 56 percent. 
D) There is not enough information to answer the question. 
A) 72 percent. 
B) 28 percent. 
C) 56 percent. 
D) There is not enough information to answer the question.

Question 14

Expansionary fiscal policy actions include __________ government spending and/or __________ taxes,while contractionary fiscal policy actions include __________ government spending and/or __________ taxes.

Accepted Answer

A) increasing;increasing;decreasing;decreasing 
B) decreasing;decreasing;increasing;increasing 
C) increasing;decreasing;increasing;decreasing 
D) decreasing;increasing;increasing;decreasing 
E) increasing;decreasing;decreasing;increasing 
A) increasing;increasing;decreasing;decreasing 
B) decreasing;decreasing;increasing;increasing 
C) increasing;decreasing;increasing;decreasing 
D) decreasing;increasing;increasing;decreasing 
E) increasing;decreasing;decreasing;increasing

Question 15

The four federal taxes that together accounted for 88 percent of all federal government tax receipts in 2013 were:

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 16

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 17

The economy is in a recessionary gap.There is no crowding out and government has correctly estimated that to bring the economy into long-run equilibrium it should raise government purchases by $123 billion.If government purchases are raised by $123 billion,does it follow that the economy will be moved into long-run equilibrium?

Accepted Answer

A) Yes,because all the necessary conditions for effective fiscal policy are present. 
B) No,because the economy may be self-regulating,and by the time expansionary fiscal policy is effective,the AD curve may intersect the SRAS curve at an inflationary-gap level of Real GDP. 
C) Yes,because of the validity of the balanced budget theorem. 
D) No,because of inflexible wages and the fact that the SRAS curve is upward-sloping. 
E) none of the above 
A) Yes,because all the necessary conditions for effective fiscal policy are present. 
B) No,because the economy may be self-regulating,and by the time expansionary fiscal policy is effective,the AD curve may intersect the SRAS curve at an inflationary-gap level of Real GDP. 
C) Yes,because of the validity of the balanced budget theorem. 
D) No,because of inflexible wages and the fact that the SRAS curve is upward-sloping. 
E) none of the above

Question 18

Suppose government spending rises by $120 billion.It follows that if private expenditures

Accepted Answer

A) rise by $120 billion,complete crowding out exists. 
B) fall by $100 billion,incomplete crowding out exists. 
C) remain unchanged,complete crowding out exists. 
D) rise by more than $120 billion,complete crowding out exists. 
E) b and c 
A) rise by $120 billion,complete crowding out exists. 
B) fall by $100 billion,incomplete crowding out exists. 
C) remain unchanged,complete crowding out exists. 
D) rise by more than $120 billion,complete crowding out exists. 
E) b and c

Question 19

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 20

Senator Smith proposes that the income tax structure be revised to have two tax rates.The first,16 percent,applies to persons whose income is between $0 and $40,000 a year.The second,23 percent,applies to persons whose income is more than $40,000 a year.This is a

Accepted Answer

A) regressive income tax structure. 
B) proportional income tax structure. 
C) progressive income tax structure. 
D) cyclical income tax structure. 
A) regressive income tax structure. 
B) proportional income tax structure. 
C) progressive income tax structure. 
D) cyclical income tax structure.

Exam 11: Fiscal Policy and the Federal Budget

A federal budget surplus occurs when government expenditures exceed tax revenues.

An expansionary fiscal policy will

In 2013,the budget deficit in the United States was approximately

Crowding out suggests that

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.

Which of the following is not an example of a "lag" that diminishes the potential impact of fiscal policy?

Taxable income rises by $1,500 and taxes rise by $435.What is the marginal tax rate?

A taxpayer pays __________ tax rate on additional income if the income tax structure is progressive,__________ tax rate on additional income if the income tax structure is proportional,and __________ tax rate on additional income if the income tax structure is regressive.

A subsidy is the same thing as a tax deduction

Supply-side economists believe reductions in tax rates can

Expansionary fiscal policy is ineffective if

​Exhibit 11-6 -Elaine's taxable income increases by $1 and her tax payment increases by $0.28.Her marginal tax rate is

Expansionary fiscal policy actions include __________ government spending and/or __________ taxes,while contractionary fiscal policy actions include __________ government spending and/or __________ taxes.

The four federal taxes that together accounted for 88 percent of all federal government tax receipts in 2013 were:

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 government spending rises by $120 billion.It follows that if private expenditures

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

Senator Smith proposes that the income tax structure be revised to have two tax rates.The first,16 percent,applies to persons whose income is between $0 and $40,000 a year.The second,23 percent,applies to persons whose income is more than $40,000 a year.This is a

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

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

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

Globalization and International Impacts on the Economy

The Economic Case for and Against Government: Five Topics Considered

Stocks, bonds, futures, and Options

Filters

A taxpayer pays tax rate on additional income if the income tax structure is progressive, tax rate on additional income if the income tax structure is proportional,and __ tax rate on additional income if the income tax structure is regressive.

Exhibit 11-6 -Elaine's taxable income increases by $1 and her tax payment increases by $0.28.Her marginal tax rate is

Expansionary fiscal policy actions include government spending and/or taxes,while contractionary fiscal policy actions include government spending and/or taxes.