Question 1

The inflation tax is primarily a tax on

Accepted Answer

A) government bonds. 
B) Social Security recipients. 
C) money. 
D) real income. 
A) government bonds. 
B) Social Security recipients. 
C) money. 
D) real income.

Question 2

Deficits are a burden on future generations if they

Accepted Answer

A) cause higher rates of inflation to occur. 
B) are not used for government capital formation. 
C) cause national saving to fall. 
D) are always a primary government deficit. 
A) cause higher rates of inflation to occur. 
B) are not used for government capital formation. 
C) cause national saving to fall. 
D) are always a primary government deficit.

Question 3

From the late 1960s to the late 1990s,the share of GDP devoted to government purchases

Accepted Answer

A) drifted gradually upward. 
B) drifted gradually downward. 
C) remained fairly steady. 
D) increased,but only after the onset of a war or a military buildup. 
A) drifted gradually upward. 
B) drifted gradually downward. 
C) remained fairly steady. 
D) increased,but only after the onset of a war or a military buildup.

Question 4

The current deficit minus net interest is called the

Accepted Answer

A) primary deficit. 
B) net current deficit. 
C) current surplus. 
D) primary current deficit. 
A) primary deficit. 
B) net current deficit. 
C) current surplus. 
D) primary current deficit.

Question 5

Find the largest nominal deficit that the government can run without raising the debt-GDP ratio,under each of the following sets of assumptions:
(a)Suppose that real GDP is 20,000 and remains constant,nominal GDP is initially 30,000,inflation is 4%,and the debt-GDP ratio is 1.2.
(b)Suppose that nominal GDP growth is 5% and outstanding nominal debt is 1500.

Accepted Answer

Use the equation: change in debt/GDP = d

Question 6

Consider an economy that has the following monetary data.
   
The monetary base and the money supply are expected to grow at a constant rate of 20% per year.Inflation and expected inflation are 20% per year.Suppose that bank reserves and currency pay no interest,all currency is held by the public,and bank deposits pay no interest.
(a)What is the cost to the public of the inflation tax?
(b)What is the nominal value of seignorage over the year?
(c)What is the profit to the banks from the inflation?

Accepted Answer

(a)$200
(b

Question 7

Suppose that all workers place a value on their leisure of 40 goods per day.The production function relating output per day Y to the number of people working per day N is
Y = 200N - N2
And the marginal product of labor is
MPN = 200 - 2N.
A 20% tax is levied on wages.In terms of lost output,what is the cost of the distortion introduced by this tax?

Accepted Answer

A) 25 
B) 75 
C) 150 
D) 225 
A) 25 
B) 75 
C) 150 
D) 225

Question 8

If the deficit is 0.02 times GDP,the existing debt/GDP ratio is 0.5,and the growth rate of nominal GDP is 0.03,then the change in the debt-GDP ratio is

Accepted Answer

A) +0.05 
B) +0.025. 
C) 0) 
D) -0.025. 
A) +0.05 
B) +0.025. 
C) 0) 
D) -0.025.

Question 9

Who bears the burden of the government debt? Explain why.Under what circumstances is there no burden to be borne?

Accepted Answer

If taxes must be raised in the future to

Question 10

When did the United States suffer hyperinflation?

Accepted Answer

A) Revolutionary War 
B) War of 1812 
C) World War II 
D) Korean War 
A) Revolutionary War 
B) War of 1812 
C) World War II 
D) Korean War

Question 11

Provisions in the budget that cause government spending to rise or taxes to fall without legislation when GDP falls are known as

Accepted Answer

A) primary deficit enhancers. 
B) expansionary fiscal stimulus. 
C) non-political fiscal policy. 
D) automatic stabilizers. 
A) primary deficit enhancers. 
B) expansionary fiscal stimulus. 
C) non-political fiscal policy. 
D) automatic stabilizers.

Question 12

Assume that in an all-currency economy the real interest rate is 4%,the expected rate of inflation is 8%,and the nominal interest rate is 12%.The monetary base equals $50 billion.The real seignorage revenue collected by the government would equal

Accepted Answer

A) $4 billion. 
B) $6 billion. 
C) $8 billion. 
D) $12 billion. 
A) $4 billion. 
B) $6 billion. 
C) $8 billion. 
D) $12 billion.

Question 13

The deficit is

Accepted Answer

A) the amount by which government purchases,transfers,and net interest exceed tax revenues. 
B) the amount by which government purchases and transfers exceed tax revenues. 
C) the primary deficit minus net interest payments. 
D) total tax revenues minus net interest minus government expenditures. 
A) the amount by which government purchases,transfers,and net interest exceed tax revenues. 
B) the amount by which government purchases and transfers exceed tax revenues. 
C) the primary deficit minus net interest payments. 
D) total tax revenues minus net interest minus government expenditures.

Question 14

Seignorage is the revenue a government raises by

Accepted Answer

A) taxation. 
B) printing money. 
C) borrowing money. 
D) charging fees for services. 
A) taxation. 
B) printing money. 
C) borrowing money. 
D) charging fees for services.

Question 15

The largest source of tax receipts for the government is

Accepted Answer

A) personal taxes. 
B) contributions for social insurance. 
C) taxes on production and imports. 
D) corporate taxes. 
A) personal taxes. 
B) contributions for social insurance. 
C) taxes on production and imports. 
D) corporate taxes.

Question 16

Suppose that the federal income tax on individuals is set up as follows:
Income above&Income belowTaxes
0$80000.10 × income
$8000$35,000$800 + [0.15 × (income - $8000)]
$35,000 & up$4850 + [0.25 × (income - $35,000)]
Calculate the average tax rate and marginal tax rate for workers with the following levels of income:
(a)$6500
(b)$27,000
(c)$72,000
(d)$250,000

Accepted Answer

(a)MTR = .10.
(b)T = 800 + [(27,000 - 8,

Question 17

A decrease in the marginal tax rate,with the average tax rate held constant,will

Accepted Answer

A) increase the amount of labor supplied at any real wage. 
B) not affect the amount of labor supplied at any real wage. 
C) decrease the amount of labor supplied at any real wage. 
D) increase the amount of labor supplied at any real wage if the average tax rate is above the marginal tax rate,but decrease the amount of labor supplied at any real wage if the average tax rate is below the marginal tax rate. 
A) increase the amount of labor supplied at any real wage. 
B) not affect the amount of labor supplied at any real wage. 
C) decrease the amount of labor supplied at any real wage. 
D) increase the amount of labor supplied at any real wage if the average tax rate is above the marginal tax rate,but decrease the amount of labor supplied at any real wage if the average tax rate is below the marginal tax rate.

Question 18

In an all-currency economy in which real output and the real interest rate are fixed and the rates of money growth and inflation are constant,the inflation rate equals

Accepted Answer

A) the real interest rate. 
B) the nominal interest rate. 
C) the growth rate of the nominal money supply. 
D) the level of real seignorage revenue. 
A) the real interest rate. 
B) the nominal interest rate. 
C) the growth rate of the nominal money supply. 
D) the level of real seignorage revenue.

Question 19

The average cost of the distortion created by taxes

Accepted Answer

A) increases proportionately with the tax rate. 
B) is lower when the tax rate is constant than when it fluctuates. 
C) is higher when the tax rate is constant than when it fluctuates. 
D) equals the square root of the tax rate. 
A) increases proportionately with the tax rate. 
B) is lower when the tax rate is constant than when it fluctuates. 
C) is higher when the tax rate is constant than when it fluctuates. 
D) equals the square root of the tax rate.

Question 20

The amount by which government purchases and transfers exceed tax revenues is known as the

Accepted Answer

A) primary surplus. 
B) primary deficit. 
C) primary current deficit. 
D) government debt. 
A) primary surplus. 
B) primary deficit. 
C) primary current deficit. 
D) government debt.

The inflation tax is primarily a tax on

Deficits are a burden on future generations if they

From the late 1960s to the late 1990s,the share of GDP devoted to government purchases

The current deficit minus net interest is called the

If the deficit is 0.02 times GDP,the existing debt/GDP ratio is 0.5,and the growth rate of nominal GDP is 0.03,then the change in the debt-GDP ratio is

Who bears the burden of the government debt? Explain why.Under what circumstances is there no burden to be borne?

When did the United States suffer hyperinflation?

Provisions in the budget that cause government spending to rise or taxes to fall without legislation when GDP falls are known as

Assume that in an all-currency economy the real interest rate is 4%,the expected rate of inflation is 8%,and the nominal interest rate is 12%.The monetary base equals $50 billion.The real seignorage revenue collected by the government would equal

The deficit is

Seignorage is the revenue a government raises by

The largest source of tax receipts for the government is

A decrease in the marginal tax rate,with the average tax rate held constant,will

In an all-currency economy in which real output and the real interest rate are fixed and the rates of money growth and inflation are constant,the inflation rate equals

The average cost of the distortion created by taxes

The amount by which government purchases and transfers exceed tax revenues is known as the

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The IS-LM/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Filters

Exam 15: Government Spending and Its Financing

The inflation tax is primarily a tax on

Deficits are a burden on future generations if they

From the late 1960s to the late 1990s,the share of GDP devoted to government purchases

The current deficit minus net interest is called the

If the deficit is 0.02 times GDP,the existing debt/GDP ratio is 0.5,and the growth rate of nominal GDP is 0.03,then the change in the debt-GDP ratio is

Who bears the burden of the government debt? Explain why.Under what circumstances is there no burden to be borne?

When did the United States suffer hyperinflation?

Provisions in the budget that cause government spending to rise or taxes to fall without legislation when GDP falls are known as

Assume that in an all-currency economy the real interest rate is 4%,the expected rate of inflation is 8%,and the nominal interest rate is 12%.The monetary base equals $50 billion.The real seignorage revenue collected by the government would equal

The deficit is

Seignorage is the revenue a government raises by

The largest source of tax receipts for the government is

A decrease in the marginal tax rate,with the average tax rate held constant,will

In an all-currency economy in which real output and the real interest rate are fixed and the rates of money growth and inflation are constant,the inflation rate equals

The average cost of the distortion created by taxes

The amount by which government purchases and transfers exceed tax revenues is known as the

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The IS-LM/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Filters