Question 1

A 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 2

To identify whether fiscal policy is expansionary or contractionary, one should focus on the cyclical deficit.

Accepted Answer

A) True 
 B)False

Question 3

If the structural deficit is $80 billion and the cyclical deficit is $150 billion, it follows that the __________ is __________ billion.

Accepted Answer

A) public debt; $230 
B) total budget deficit; $70 
C) total budget deficit; $230 
D) net public debt; $70 
E) none of the above

Question 4

Buchanan and Wagner assert that there is a political bias toward contractionary fiscal policy and not expansionary fiscal policy.

Accepted Answer

A) True 
 B)False

Question 5

When the economy is in a recessionary gap, Keynesian economists will often advocate expansionary policy measures. Why?

Accepted Answer

A) Keynesians believe the economy sometimes gets stuck in a recessionary gap and can't get itself out without government intervention. 
B) Keynesians believe the economy itself sometimes takes too long to eliminate the recessionary gap and return to full-employment output. 
C) Keynesians are generally in favor of increasing taxes. 
D) a and b 
E) a and c

Question 6

Define the term budget deficit (as it applies to the federal government) and describe the difference between a cyclical deficit and a structural deficit. Provide a hypothetical numerical example to help support your answer.

Accepted Answer

The answer of Define the term budget deficit (as it...

Question 7

The answer is: "After a policy measure is implemented, it takes time to affect the economy." What is the question?

Accepted Answer

A) What is the wait-and-see lag? 
B) What is the data lag? 
C) What is the effectiveness lag? 
D) What is the transmission lag? 
E) What is the legislative lag?

Question 8

Elaine's taxable income increases by $1 and her tax payment increases by $0.28. Her marginal tax rate is

Accepted Answer

A) 72 percent. 
B) 28 percent. 
C) 56 percent. 
D) There is not enough information to answer the question.

Question 9

Explain the difference between a progressive income tax, a proportional income tax and a regressive income tax. Under which type of system is the federal income tax?

Accepted Answer

The answer of Explain the difference between a progressive income...

Question 10

Suppose government spending rises by $120 billion. It follows that if private expenditures

Accepted Answer

A) rise by $120 billion, complete crowding out exists. 
B) fall by $100 billion, incomplete crowding out exists. 
C) remain unchanged, complete crowding out exists. 
D) rise by more than $120 billion, complete crowding out exists. 
E) b and c

Question 11

The answer is: "Policymakers are not aware of changes in the economy as soon as they happen." What is the question?

Accepted Answer

A) What is the wait-and-see lag? 
B) What is the data lag? 
C) What is the effectiveness lag? 
D) What is the transmission lag? 
E) none of the above

Question 12

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 13

Exhibit 11-2
 
-Refer to Exhibit 11-2. At the highest point above the horizontal axis, tax revenues

Accepted Answer

A) are maximized. 
B) are lower than at A and higher than at B. 
C) are lower than at B and higher than at A. 
D) drop to zero.

Question 14

Exhibit 11-4
 
-Refer to Exhibit 11-4. If a person's taxable income is $90,000, how much does he pay in taxes?

Accepted Answer

A) $17,600. 
B) $19,250. 
C) $8,780. 
D) $22,110.

Question 15

Use the information provided in Exhibit 11-4. If a person's taxable income is $110,000, how much does he pay in taxes?

Accepted Answer

A) $21,750 
B) $33,000 
C) $24,750 
D) $28,410

Question 16

An example of automatic fiscal policy is

Accepted Answer

A) the unemployed automatically become eligible for unemployment benefits when they lose their jobs in a recession. 
B) when interest rates automatically fall in a recession. 
C) Congress passes a law during a recession that automatically extends unemployment benefits for those whose benefits will soon expire. 
D) a and b 
E) a, b and c

Question 17

According to the textbook (based upon 2014 data), if the bottom half of all U.S. income tax payers were allowed to stop paying the income tax entirely and the top 50% continued to pay as they do now, tax revenues to the government would drop by about

Accepted Answer

A) 2.75 percent. 
B) 15.7 percent. 
C) 23.9 percent. 
D) 33.3 percent. 
E) 50.8 percent

Question 18

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 19

Define crowding out. Give a hypothetical numerical example to show the difference between complete crowding out and incomplete crowding out. Explain how complete and incomplete crowding out could impact the effectiveness of fiscal policy.

Accepted Answer

The answer of Define crowding out. Give a hypothetical numerical...

Question 20

The top 1% of income earners in the U.S. (those with the highest taxable incomes) pay

Accepted Answer

A) about the same percentage of their incomes in taxes as the average U.S.taxpayer. 
B) a much lower percentage of their incomes in taxes than the average U.S.taxpayer. 
C) a much higher percentage of their incomes in taxes than the average U.S.taxpayer. 
D) about 15 percent of their incomes in income taxes 
E) a and d

Exam 11: Fiscal Policy and the Federal Budget