Question 1

If the government runs a deficit, the total amount of government debt is

Accepted Answer

A)  constant. 
B)  decreasing. 
C)  zero. 
D)  increasing.

Question 2

The largest source of revenue for the federal government is and the largest outlay is for
)

Accepted Answer

A)  personal income taxes; interest on national debt 
B)  personal income taxes; Medicare 
C)  personal income taxes; transfer payments 
D)  corporate taxes; Social Security

Question 3

In order for the United States to repay its international debt, the United States would need to

Accepted Answer

A)  have a surplus of exports over imports. 
B)  cut taxes. 
C)  have a current account deficit. 
D)  have a surplus of imports over exports.

Question 4

The aggregate demand curve is shifted rightward by

Accepted Answer

A)  an increase in tax rates. 
B)  an increase in the federal budget surplus. 
C)  an increase in government expenditure. 
D)  a decrease in government expenditure.

Question 5

A decrease in government expenditures on goods and services is an example of .

Accepted Answer

A)  increasing induced taxes 
B)  decreasing needs- tested spending programs 
C)  a fiscal policy designed to decrease real GDP 
D)  a fiscal policy designed to increase real GDP

Question 6

In October 2008, President Bush enacted the Alternative Minimum Tax Relief Act of 2008, which resulted in lower taxes on labor income. According the supply- side view, as a result of this act the incentive to work _ and the tax wedge _ .

Accepted Answer

A)  increases; decreases 
B)  increases; does not change 
C)  increases; increases 
D)  decreases; increases

Question 7

Spending on programs that result in transfer payments that depend on the economic state of individuals and businesses is called _.

Accepted Answer

A)  needs- tested spending 
B)  transfer spending 
C)  welfare 
D)  business subsidies

Question 8

Norway has a lower tax on dividend and interest income than does United Kingdom. We would expect Norway to have a _ tax wedge and a _ growth rate of real GDP.

Accepted Answer

A)  larger; slower 
B)  smaller; faster 
C)  larger; faster 
D)  smaller; slower

Question 9

Government expenditure on goods and services is the largest component of total federal government expenditures.

Accepted Answer

A) True 
 B)False

Question 10

The term "induced taxes" refers to

Accepted Answer

A)  sales taxes that we pay but could avoid if we choose not to purchase the item. 
B)  local property taxes that we pay in addition to the federal income tax. 
C)  the taxes that we are forced to pay. 
D)  the rise in taxes due to a rise in GDP.

Question 11

Fiscal policy can be defined as

Accepted Answer

A)  government policy with respect to transfer payments such as unemployment compensation and welfare. 
B)  government spending and tax decisions accomplished using automatic stabilizers. 
C)  use of the federal budget to reach macroeconomic objectives. 
D)  government policy to retire the federal government debt.

Question 12

A decrease in the income tax rate

Accepted Answer

A)  increases the supply of labor. 
B)  decreases potential GDP. 
C)  increases the tax wedge. 
D)  decreases the demand for labor.

Question 13

Between 2000 and 2005, Finland increased its tax on dividend (interest) income. As a result, the tax wedge and the growth rate of real GDP _ .

Accepted Answer

A)  increased; slowed 
B)  decreased; increased 
C)  increased; increased 
D)  decreased; slowed

Question 14

How can discretionary fiscal policy be used to close a deflationary gap?

Accepted Answer

The answer of How can discretionary fiscal policy be used...

Question 15

Spending by state and local governments is similar to spending by the federal government in that both

Accepted Answer

A)  help stabilize the aggregate economy. 
B)  have deficits that rise during recessions. 
C)  spend most of their budgets on education. 
D)  None of the above answers are correct.

Question 16

The government's budget deficit or surplus equals the

Accepted Answer

A)  total tax revenue minus total government outlays. 
B)  change in outlays divided by change in revenue. 
C)  average outlay divided by average revenue. 
D)  change in revenue minus change in outlays.

Question 17

If we compare the United States to France, the U.S. tax wedge is the French tax wedge.

Accepted Answer

A)  smaller than 
B)  equals to 
C)  not comparable to 
D)  larger than

Question 18

Taking account of the supply- side effects, a tax cut on labor income employment and
Potential GDP.

Accepted Answer

A)  increases; increases 
B)  decreases; decreases 
C)  decreases; increases 
D)  increases; decreases

Question 19

The structural surplus is the surplus

Accepted Answer

A)  caused by the business cycle. 
B)  during an expansion. 
C)  that would occur at full employment. 
D)  during a recession.

Question 20

-What is the amount of the surplus or deficit incurred in year 4 by the government shown in the above table?

Accepted Answer

A)  $5 billion surplus 
B)  $320 billion surplus 
C)  $35 billion surplus 
D)  $20 billion deficit

Exam 13: Fiscal Policy