Question 1

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 2

For which of the following reasons are VATs considered to be very important revenue generators for the government?

Accepted Answer

A) They are regressive in nature 
B) They target only individuals in the high income class 
C) They cannot be avoided by individuals 
D) They boost a country's exports 
E) They lower a country's imports 
A) They are regressive in nature 
B) They target only individuals in the high income class 
C) They cannot be avoided by individuals 
D) They boost a country's exports 
E) They lower a country's imports

Question 3

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 on 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 on 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 4

The sum of the unemployment rate and the inflation rate is known as:

Accepted Answer

A) the macroeconomic index. 
B) the mortality rate. 
C) the market index. 
D) the misery index. 
E) a coincident indicator. 
A) the macroeconomic index. 
B) the mortality rate. 
C) the market index. 
D) the misery index. 
E) a coincident indicator.

Question 5

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

Accepted Answer

A) Personal income taxes 
B) Sales taxes 
C) Excise taxes 
D) Import tariffs 
E) Value-added taxes 
A) Personal income taxes 
B) Sales taxes 
C) Excise taxes 
D) Import tariffs 
E) Value-added taxes

Question 6

If all U.S.government bonds are held by U.S.citizens, then:

Accepted Answer

A) the bondholders will not earn interest on the bonds. 
B) there is no tax liability for funding the U.S.government's debt. 
C) there is no net change in national wealth when the national debt changes. 
D) the tax liability for funding the debt is not offset by the interest earnings of bondholders. 
E) the tax rates are not increased to repay the outstanding debts. 
A) the bondholders will not earn interest on the bonds. 
B) there is no tax liability for funding the U.S.government's debt. 
C) there is no net change in national wealth when the national debt changes. 
D) the tax liability for funding the debt is not offset by the interest earnings of bondholders. 
E) the tax rates are not increased to repay the outstanding debts.

Question 7

Suppose the equilibrium level of income exceeds the full employment level of income and there is high inflation.Hence, the government decides to implement a fiscal policy that will act to reducenational output and prices.This can be accomplished by:

Accepted Answer

A) increasing government spending such that aggregate expenditures are increased. 
B) raising taxes and government spending by the same amount such that aggregate supply is decreased and aggregate demand is increased. 
C) decreasing government spending such that aggregate demand is reduced. 
D) lowering average tax rates such that aggregate supply is increased. 
E) increasing transfer payments such that aggregate expenditures decline. 
A) increasing government spending such that aggregate expenditures are increased. 
B) raising taxes and government spending by the same amount such that aggregate supply is decreased and aggregate demand is increased. 
C) decreasing government spending such that aggregate demand is reduced. 
D) lowering average tax rates such that aggregate supply is increased. 
E) increasing transfer payments such that aggregate expenditures decline.

Question 8

If the government sells U.S.Treasury bonds to finance its budget deficit, one would expect:

Accepted Answer

A) interest rates to rise. 
B) domestic investment to rise. 
C) tax rates to fall. 
D) inflation to rise. 
E) interest rates to fall. 
A) interest rates to rise. 
B) domestic investment to rise. 
C) tax rates to fall. 
D) inflation to rise. 
E) interest rates to fall.

Question 9

_____ refers to the changes in government spending and taxation that are aimed at achieving a policy goal.

Accepted Answer

A) Discretionary monetary policy 
B) Discretionary fiscal policy 
C) Discretionary foreign trade policy 
D) Discretionary exchange rate policy 
E) Discretionary interest rate policy 
A) Discretionary monetary policy 
B) Discretionary fiscal policy 
C) Discretionary foreign trade policy 
D) Discretionary exchange rate policy 
E) Discretionary interest rate policy

Question 10

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 11

If fewer businesses offer new bonds to raise investment funds when government borrowing increases interest rates, this would be an example of:

Accepted Answer

A) Ricardian equivalence. 
B) overestimating the tax multiplier. 
C) crowding out. 
D) increased consumption. 
E) the balanced-budget multiplier. 
A) Ricardian equivalence. 
B) overestimating the tax multiplier. 
C) crowding out. 
D) increased consumption. 
E) the balanced-budget multiplier.

Question 12

Suppose the Congress enacts a 5 percent decrease in annual military expenditures.Other things equal, this can be associated with:

Accepted Answer

A) a change in the slope of the aggregate demand curve. 
B) a leftward shift of the aggregate demand curve. 
C) a rightward shift of the aggregate demand curve. 
D) a movement down along the aggregate demand curve. 
E) a movement up along the aggregate demand curve. 
A) a change in the slope of the aggregate demand curve. 
B) a leftward shift of the aggregate demand curve. 
C) a rightward shift of the aggregate demand curve. 
D) a movement down along the aggregate demand curve. 
E) a movement up along the aggregate demand curve.

Question 13

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 you were a member of the Congress that aims to increase tax revenue collections, what would you recommend if the current tax rate were 80 percent?

Accepted Answer

A) Increasing the tax rate to 100 percent 
B) Decreasing the tax rate to 30 percent 
C) Decreasing the tax rate to 70 percent 
D) Increasing the tax rate to 90 percent 
E) Decreasing the tax rate to zero percent 
A) Increasing the tax rate to 100 percent 
B) Decreasing the tax rate to 30 percent 
C) Decreasing the tax rate to 70 percent 
D) Increasing the tax rate to 90 percent 
E) Decreasing the tax rate to zero percent

Exam 17: Fiscal Policy

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

For which of the following reasons are VATs considered to be very important revenue generators for the government?

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

The sum of the unemployment rate and the inflation rate is known as:

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

If all U.S.government bonds are held by U.S.citizens, then:

Suppose the equilibrium level of income exceeds the full employment level of income and there is high inflation.Hence, the government decides to implement a fiscal policy that will act to reducenational output and prices.This can be accomplished by:

If the government sells U.S.Treasury bonds to finance its budget deficit, one would expect:

_____ refers to the changes in government spending and taxation that are aimed at achieving a policy goal.

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

If fewer businesses offer new bonds to raise investment funds when government borrowing increases interest rates, this would be an example of:

Suppose the Congress enacts a 5 percent decrease in annual military expenditures.Other things equal, this can be associated with:

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 you were a member of the Congress that aims to increase tax revenue collections, what would you recommend if the current tax rate were 80 percent?

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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