Question 1

Crowding out results in a decrease in

Accepted Answer

A)   transfer payments.
B)   defense spending.
C)   private spending.
D)   government spending. C

Question 2

Exhibit 11-4
 
-Refer to Exhibit 11-4. If a person's taxable income is $30,000,how much does he pay in taxes?

Accepted Answer

A)   $4,345
B)   $1,400
C)   $3,900
D)   $4,850 D

Question 3

A structural deficit refers to that part of the deficit that exists as a result of a downturn in economic activity.

Accepted Answer

A) True 
 B)False  False

Question 4

The AD curve shifts to the right with a __________ in government purchases (G)or a __________ in taxes.

Accepted Answer

A)   rise; rise
B)   rise; fall
C)   fall; rise
D)   fall; fall

Question 5

If an individual pays an additional $0.30 in taxes as a result of a $1.00 increase in income,then that individual must have a(n)__________ tax rate of 30 percent.

Accepted Answer

A)   average
B)   fixed
C)   total
D)   marginal

Question 6

Suppose the economy is at a position below its institutional production possibilities frontier.In response to this situation,Keynesian economists would propose that government __________ taxes,which will cause the aggregate demand curve to shift to the __________ and Real GDP will __________.

Accepted Answer

A)   increase; right; increase
B)   increase; left; decrease
C)   decrease; left; decrease
D)   decrease; right; decrease
E)   decrease; right; increase

Question 7

Smith says that if government purchases rise by $100 billion,the AD curve will shift to the right.Jones says that if government purchases rise by $100 billion,the AD curve will not shift to the right.It follows that

Accepted Answer

A)   Smith believes there will be zero or complete crowding out and Jones believes there will be complete crowding out.
B)   Smith believes there will be incomplete or zero crowding out and Jones believes there will be complete crowding out.
C)   Smith believes there will be complete crowding out and Jones believes there will be zero crowding out.
D)   Both Smith and Jones believe there will be incomplete crowding out, although Jones believes there will be more incomplete crowding out than Smith believes there will be.
E)   none of the above

Question 8

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.

Question 9

If there is complete crowding out as a result of an increase in government spending there will be

Accepted Answer

A)   a decrease in aggregate demand.
B)   no change in aggregate demand.
C)   an increase in aggregate demand.
D)   a downward movement along the aggregate demand curve.

Question 10

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,001st dollar of taxable income earned?

Accepted Answer

A)   15%
B)   20%
C)   25%
D)   30%
E)   There is not enough information provided to answer this question.

Question 11

Exhibit 11-1
 
-Refer to Exhibit 11-1.The economy is currently at point 1.Suppose the federal government increases purchases and there is complete crowding out.As a result,the aggregate demand (AD)curve in the exhibit

Accepted Answer

A)   maintains its present position at AD1.
B)   shifts rightward, but does not shift rightward by enough to go through point 2.
C)   shifts rightward by enough to go through point 2.
D)   shifts leftward.

Question 12

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

Accepted Answer

A)   increase; LRAS curve to the right
B)   increase; AD curve to the right
C)   increase; SRAS curve to the left
D)   decrease; LRAS curve to the right
E)   decrease; AD curve to the left

Question 13

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

Question 14

A federal budget surplus

Accepted Answer

A)   occurs when government expenditures exceed tax revenues.
B)   occurs when tax revenues exceed government expenditures.
C)   occurs when tax revenues exceed transfer payments.
D)   occurs when monetary policy works in the opposite direction of fiscal policy.
E)   is an impossibility.

Question 15

The data lag is the time between

Accepted Answer

A)   the implementation of a policy and when the impact of the policy is felt.
B)   the enactment of a policy and the implementation of the policy.
C)   realizing a policy is needed and enacting the policy.
D)   the occurrence of an event and policymakers realizing the event has occurred.

Question 16

Exhibit 11-5
  
Assume that the farmer grows wheat and sells it to the miller, the miller turns the wheat into flour and sells it to the baker, and the baker turns the flour into bread and sells it to the final consumer.
-Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT). If the government imposes a VAT rate of 10 percent,the baker must pay ___________ in VAT tax and will need to raise the price he charges the final consumer to _______________.

Accepted Answer

A)   $0.06; $2.25
B)   $0.11; $2.75
C)   $0.25; $2.75
D)   $0.60; $2.57

Question 17

Exhibit 11-5
  
Assume that the farmer grows wheat and sells it to the miller, the miller turns the wheat into flour and sells it to the baker, and the baker turns the flour into bread and sells it to the final consumer.
-Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT). If the government imposes a VAT rate of 10 percent,the government will receive ___________ in VAT revenue per loaf of bread sold and the final consumer will find that he has to pay _______________ more for a loaf of bread than he did prior to the VAT tax.

Accepted Answer

A)   $0.25; $2.53
B)   $0.11; $2.75
C)   $0.25; $0.25
D)   $0.03; $2.75

Question 18

A permanent marginal tax decrease is likely to

Accepted Answer

A)   shift the short-run aggregate supply curve to the left and the long-run aggregate supply curve to the right.
B)   shift both the short-run and the long-run aggregate supply curves to the left.
C)   shift the short-run aggregate supply curve to the right, and the long-run aggregate supply curve to the left.
D)   shift both the short run and the long run aggregate supply curves to the right.

Question 19

Suppose the economy is in a recessionary gap. If government expenditures are currently $1.4 trillion and tax revenues are currently $1 trillion,the (total)budget deficit is _____________. Assume that economists estimate that if the economy were operating at full employment
Government expenditures would be $1.2 trillion and tax revenues would be $1.1 trillion. The structural deficit is _________________ and the cyclical deficit is _______________.

Accepted Answer

A)   $2.4 trillion; $2.2 trillion; $200 billion
B)   $400 billion; $300 billion; $100 billion
C)   $400 billion; $100 billion; $300 billion
D)   $300 billion; $100 billion; $400 billion

Question 20

If the economy is on the downward-sloping portion of the Laffer curve,a(an)__________ in tax rates will __________ tax revenues.

Accepted Answer

A)   decrease; reduce
B)   increase; raise
C)   decrease; raise
D)   decrease; not change
E)   increase; not change

Exam 11: Fiscal Policy and the Federal Budget

Crowding out results in a decrease in

Exhibit 11-4 -Refer to Exhibit 11-4. If a person's taxable income is $30,000,how much does he pay in taxes?

A structural deficit refers to that part of the deficit that exists as a result of a downturn in economic activity.

The AD curve shifts to the right with a in government purchases (G) or a in taxes.

If an individual pays an additional $0.30 in taxes as a result of a $1.00 increase in income,then that individual must have a(n) __________ tax rate of 30 percent.

Suppose the economy is at a position below its institutional production possibilities frontier.In response to this situation,Keynesian economists would propose that government taxes,which will cause the aggregate demand curve to shift to the and Real GDP will __.

Smith says that if government purchases rise by $100 billion,the AD curve will shift to the right.Jones says that if government purchases rise by $100 billion,the AD curve will not shift to the right.It follows that

An expansionary fiscal policy will

If there is complete crowding out as a result of an increase in government spending there will be

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,001st dollar of taxable income earned?

Exhibit 11-1 -Refer to Exhibit 11-1.The economy is currently at point 1.Suppose the federal government increases purchases and there is complete crowding out.As a result,the aggregate demand (AD) curve in the exhibit

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

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

A federal budget surplus

The data lag is the time between

A permanent marginal tax decrease is likely to

If the economy is on the downward-sloping portion of the Laffer curve,a(an) in tax rates will tax revenues.

Exam 11: Fiscal Policy and the Federal Budget

Crowding out results in a decrease in

Exhibit 11-4 -Refer to Exhibit 11-4. If a person's taxable income is $30,000,how much does he pay in taxes?

A structural deficit refers to that part of the deficit that exists as a result of a downturn in economic activity.

The AD curve shifts to the right with a __________ in government purchases (G) or a __________ in taxes.

If an individual pays an additional $0.30 in taxes as a result of a $1.00 increase in income,then that individual must have a(n) __________ tax rate of 30 percent.

Suppose the economy is at a position below its institutional production possibilities frontier.In response to this situation,Keynesian economists would propose that government __________ taxes,which will cause the aggregate demand curve to shift to the __________ and Real GDP will __________.

Smith says that if government purchases rise by $100 billion,the AD curve will shift to the right.Jones says that if government purchases rise by $100 billion,the AD curve will not shift to the right.It follows that

An expansionary fiscal policy will

If there is complete crowding out as a result of an increase in government spending there will be

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,001st dollar of taxable income earned?

Exhibit 11-1 -Refer to Exhibit 11-1.The economy is currently at point 1.Suppose the federal government increases purchases and there is complete crowding out.As a result,the aggregate demand (AD) curve in the exhibit

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

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

A federal budget surplus

The data lag is the time between

A permanent marginal tax decrease is likely to

If the economy is on the downward-sloping portion of the Laffer curve,a(an) __________ in tax rates will __________ tax revenues.

The AD curve shifts to the right with a in government purchases (G) or a in taxes.

Suppose the economy is at a position below its institutional production possibilities frontier.In response to this situation,Keynesian economists would propose that government taxes,which will cause the aggregate demand curve to shift to the and Real GDP will __.

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

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

If the economy is on the downward-sloping portion of the Laffer curve,a(an) in tax rates will tax revenues.