Question 1

A curve showing the relationship between tax rates and tax revenues is called a __________ curve.

Accepted Answer

A)  Phillips
B)  Keynesian
C)  Gaussian
D)  Laffer

Question 2

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 3

Suppose Congress increases income taxes. This is an example of

Accepted Answer

A)  expansionary fiscal policy.
B)  expansionary monetary policy.
C)  contractionary fiscal policy.
D)  contractionary monetary policy.

Question 4

Which of the following is an example of crowding out?

Accepted Answer

A)  A decrease in the rate of growth of the money supply which causes a decrease in Real GDP.
B)  A budget deficit causes an increase in interest rates, which causes a decrease in investment spending.
C)  An increase in tariffs which causes a decrease in imports.
D)  A decrease in government housing subsidies which causes an increase in private spending on housing.

Question 5

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 6

As a result of crowding out, demand-side fiscal policy may be ineffective at achieving certain macroeconomic goals.

Accepted Answer

A) True 
 B)False

Question 7

Fiscal policy is implemented primarily by

Accepted Answer

A)  local governments alone.
B)  the defense department.
C)  state governments alone.
D)  the federal government.
E)  state and local governments.

Question 8

If there is complete crowding out, the change in Real GDP that results from a given change in autonomous spending will be

Accepted Answer

A)  zero.
B)  greater than if there was incomplete crowding out.
C)  infinite.
D)  There is not enough information to answer the question.

Question 9

Suppose that in a certain nation the flat income tax rate of 30 percent rises to 35 percent and as a result the tax base falls from $400 billion to $375 billion. As a result, tax revenues __________, indicating the nation is on the __________ portion of its Laffer curve.

Accepted Answer

A)  rise; upward-sloping
B)  rise; downward-sloping
C)  fall; upward-sloping
D)  fall; downward-sloping

Question 10

Tax revenues equal the (average) tax rate multiplied by the tax base.

Accepted Answer

A) True 
 B)False

Question 11

With a progressive income tax, as taxable income rises (up to a certain point), one's tax rate rises.

Accepted Answer

A) True 
 B)False

Question 12

The transmission 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 (getting a policy passed by Congress with the president's approval)  and the implementation of the policy (putting a policy into effect) .
C)  realizing a policy is needed and enacting the policy.
D)  the occurrence of an event and policymakers realizing the event has occurred.

Question 13

Income tax revenues rise as income tax rates fall. It follows that the

Accepted Answer

A)  percentage cut in the tax rate is greater than the percentage increase in the tax base.
B)  percentage cut in the tax rate is less than the percentage increase in the tax base.
C)  percentage cut in the tax rate is equal to the percentage increase in the tax base.
D)  marginal tax rate is equal to the average tax rate
E)  b and d

Question 14

At a taxable income of $50,000 Mari's income tax is $10,500. When her taxable income rises to $55,000 her income tax is $11,750. Based on this information, what is Mari's marginal tax rate?

Accepted Answer

A)  18.7 percent
B)  39 percent
C)  10 percent
D)  25 percent
E)  20 percent

Question 15

Taxable income rises by $2,500 and taxes rise by $825. What is the marginal tax rate?

Accepted Answer

A)  4 percent
B)  29 percent
C)  10 percent
D)  33 percent
E)  25 percent

Question 16

The economy is in a recessionary gap, there is incomplete crowding out, and government implements expansionary fiscal policy. It follows that

Accepted Answer

A)  Real GDP will fall.
B)  the AD curve will shift to the right.
C)  the price level will fall.
D)  the recessionary gap will necessarily be completely eliminated.
E)  b and d

Question 17

A "flat tax" is another term for __________ tax.

Accepted Answer

A)  a progressive
B)  a proportional
C)  a regressive
D)  the inflation

Question 18

Fiscal policy refers to

Accepted Answer

A)  efforts to balance a government's budget.
B)  changes in the money supply to achieve particular economic goals.
C)  changes in government expenditures and taxation to achieve particular economic goals.
D)  the change in private expenditures that occurs as a consequence of changes in government spending.

Question 19

Which of the following is not an example of crowding out?

Accepted Answer

A)  Government purchases rise, the budget deficit rises, the federal government's demand for loanable funds rises, the interest rate rises, and investment falls.
B)  Government spends more on X, prompting individuals to spend less on X.
C)  Taxes decline, the budget deficit rises, the federal government's demand for loanable funds rises, the interest rate rises, the demand rises for U.S.dollars, the dollar appreciates, and net exports decline.
D)  Business firms spend more on X, prompting households to spend less on Y.
E)  none of the above

Question 20

Exhibit 11-1
 
-Refer to Exhibit 11-1. The economy is currently at point 1. In this situation, Keynesian economists would most likely propose

Accepted Answer

A)  an increase in government purchases.
B)  a decrease in government purchases.
C)  an increase in taxes.
D)  a and c
E)  b and c

Exam 11: Fiscal Policy and the Federal Budget

Which of the following is not an example of crowding out?

Correct AnswerverifiedShow Answer

With a progressive income tax, as taxable income rises (up to a certain point), one's tax rate rises.

Correct AnswerverifiedShow Answer

If there is complete crowding out, the change in Real GDP that results from a given change in autonomous spending will be

Correct AnswerverifiedShow Answer

Suppose Congress increases income taxes. This is an example of

Correct AnswerverifiedShow Answer

Taxable income rises by $2,500 and taxes rise by $825. What is the marginal tax rate?

Correct AnswerverifiedShow Answer

Fiscal policy refers to

Correct AnswerverifiedShow Answer

As a result of crowding out, demand-side fiscal policy may be ineffective at achieving certain macroeconomic goals.

Correct AnswerverifiedShow Answer

Suppose that in a certain nation the flat income tax rate of 30 percent rises to 35 percent and as a result the tax base falls from $400 billion to $375 billion. As a result, tax revenues __________, indicating the nation is on the __________ portion of its Laffer curve.

Correct AnswerverifiedShow Answer

The transmission lag is the time between

Correct AnswerverifiedShow Answer

Income tax revenues rise as income tax rates fall. It follows that the

Correct AnswerverifiedShow Answer

Exhibit 11-1 -Refer to Exhibit 11-1. The economy is currently at point 1. In this situation, Keynesian economists would most likely propose

Correct AnswerverifiedShow Answer

Fiscal policy is implemented primarily by

Correct AnswerverifiedShow Answer

Which of the following is an example of crowding out?

Correct AnswerverifiedShow Answer

A "flat tax" is another term for __________ tax.

Correct AnswerverifiedShow Answer

A permanent marginal tax decrease is likely to

Correct AnswerverifiedShow Answer

Tax revenues equal the (average) tax rate multiplied by the tax base.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

At a taxable income of $50,000 Mari's income tax is $10,500. When her taxable income rises to $55,000 her income tax is $11,750. Based on this information, what is Mari's marginal tax rate?

Correct AnswerverifiedShow Answer

A curve showing the relationship between tax rates and tax revenues is called a __________ curve.

Correct AnswerverifiedShow Answer

The economy is in a recessionary gap, there is incomplete crowding out, and government implements expansionary fiscal policy. It follows that

Correct AnswerverifiedShow Answer

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Suppose that in a certain nation the flat income tax rate of 30 percent rises to 35 percent and as a result the tax base falls from $400 billion to $375 billion. As a result, tax revenues , indicating the nation is on the portion of its Laffer curve.

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

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