Question 1

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 the tax rate were 100 percent:

Accepted Answer

A) tax revenue would be maximized. 
B) no one would be willing to work. 
C) there would be a strong incentive to work. 
D) tax revenue would be greater than if the tax rate were zero percent. 
E) tax revenue would be less than if the tax rate were zero percent. 
A) tax revenue would be maximized. 
B) no one would be willing to work. 
C) there would be a strong incentive to work. 
D) tax revenue would be greater than if the tax rate were zero percent. 
E) tax revenue would be less than if the tax rate were zero percent.

Question 2

Identify the industrial country that spends 43 percent of its budget on social security, health, and education programs.

Accepted Answer

A) China 
B) India 
C) Brazil 
D) Russia 
E) The United States 
A) China 
B) India 
C) Brazil 
D) Russia 
E) The United States

Question 3

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 4

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 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 7

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 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

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

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is true of U.S.national debt between 1958 and 2010?

Accepted Answer

A) Total debt in the U.S.crossed $104 trillion in 2009. 
B) Debt as a percentage of GDP was the highest in the year 1978. 
C) Net interest payable by the U.S.government was the highest in the year 1990. 
D) Interest payment as a percentage of total government spending was the highest in 2009. 
E) Net interest payable by the U.S.government crossed $250 billion in 2009. 
A) Total debt in the U.S.crossed $104 trillion in 2009. 
B) Debt as a percentage of GDP was the highest in the year 1978. 
C) Net interest payable by the U.S.government was the highest in the year 1990. 
D) Interest payment as a percentage of total government spending was the highest in 2009. 
E) Net interest payable by the U.S.government crossed $250 billion in 2009.

Question 11

Governments in developing countries typically play a larger role in investment spending in their economies than do the governments of industrial countries.

Accepted Answer

A) True 
 B)False

Question 12

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 13

If consumers spend _____ of a change in their disposable income, then a tax increase of $100 would lower consumption by $70.

Accepted Answer

A) 35 percent 
B) 100 percent 
C) 80 percent 
D) 70 percent 
E) 50 percent 
A) 35 percent 
B) 100 percent 
C) 80 percent 
D) 70 percent 
E) 50 percent

Question 14

Which of the following does not qualify as an automatic stabilizer in the economy?

Accepted Answer

A) Lump-sum taxes 
B) Food stamps 
C) Welfare payments 
D) Progressive income taxes 
E) Unemployment compensation 
A) Lump-sum taxes 
B) Food stamps 
C) Welfare payments 
D) Progressive income taxes 
E) Unemployment compensation

Question 15

The U.S.government deficit as a percentage of GDP was much larger during World War II than it was in the 1980s and 1990s.

Accepted Answer

A) True 
 B)False

Question 16

If the private sector anticipates higher future taxes as a result of a current budget deficit, current autonomous saving will decline.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Other things equal, the steeper the slope of the aggregate supply curve, the more effective will be the expansionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Ceteris paribus, the greater the foreign holdings of the U.S.treasury securities:

Accepted Answer

A) the lower the value of the U.S.dollar in the foreign exchange market. 
B) the higher the interest rate in the U.S. 
C) the greater the level of U.S.imports. 
D) the lower the wealth of the U.S.citizens. 
E) the lower the tax rate in the U.S.economy. 
A) the lower the value of the U.S.dollar in the foreign exchange market. 
B) the higher the interest rate in the U.S. 
C) the greater the level of U.S.imports. 
D) the lower the wealth of the U.S.citizens. 
E) the lower the tax rate in the U.S.economy.

Exam 17: Fiscal Policy

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 the tax rate were 100 percent:

Identify the industrial country that spends 43 percent of its budget on social security, health, and education programs.

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?

A major benefit of automatic stabilizers is that they:

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

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

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:

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.

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

Which of the following is true of U.S.national debt between 1958 and 2010?

Governments in developing countries typically play a larger role in investment spending in their economies than do the governments of industrial countries.

Which of the following is true about automatic stabilizers?

If consumers spend _____ of a change in their disposable income, then a tax increase of $100 would lower consumption by $70.

Which of the following does not qualify as an automatic stabilizer in the economy?

The U.S.government deficit as a percentage of GDP was much larger during World War II than it was in the 1980s and 1990s.

If the private sector anticipates higher future taxes as a result of a current budget deficit, current autonomous saving will decline.

Other things equal, the steeper the slope of the aggregate supply curve, the more effective will be the expansionary fiscal policy.

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

Ceteris paribus, the greater the foreign holdings of the U.S.treasury securities:

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

Elasticity: Demand and Supply

National Income Accounting

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

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

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

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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