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Exam 35: Government Spending, Taxes, and Fiscal Policy

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Question 21

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Discuss three reasons why tax expenditures primarily benefit the wealthy.

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Question 22

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(Figure: Fiscal Policy I) Use Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If there is an increase in taxes, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

A) AD2; left; increase; decrease
B) AD2; left; increase; decrease.
C) AD2; left; decrease; decrease
D) AD2; left; decrease; decrease.
E) AD1; right; increase; increase
F) AD1; right; increase; increase.
G) AD1; right; decrease; increase
H) AD1; right; decrease; increase.

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Question 23

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(Figure: Short-Run Equilibrium) Use Figure: Short-Run Equilibrium. The diagram indicates a short-run inflationary gap. The size of the inflationary gap is:

If an item costs $95 in California and the sales tax is 7.25%, you will pay a total of $_____ at the register.

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $850. How much will your work cost your employer?

In your current job, you earn $41,000. You take the standard deduction of $12,200. You have an offer of a new job working for a different employer. Your salary would go up by $6,500. Given your current taxable income, what is your marginal tax rate? $\begin{array} { c c c } \hline \begin{array} { l } \text { For taxable } \\\text { income over } \ldots\end{array} & \begin{array} { c } \ldots \text { but not } \\\text { over } \ldots\end{array} & \begin{array} { c } \ldots \text { the marginal } \\\text { tax rate is: }\end{array} \\\hline \$ 0 & \$ 9,700 & 10 \% \\\$ 9,700 & \$ 39,475 & 12 \% \\\$ 39,475 & \$ 84,200 & 22 \% \\\$ 84,200 & \$ 160,725 & 24 \% \\\$ 160,725 & \$ 204,100 & 32 \% \\\$ 204,100 & \$ 510,300 & 35 \% \\\$ 510,300 & - & 37 \% \\\hline\end{array}$

(Figure: Fiscal Policy Choices) Use Figure: Fiscal Policy Choices. In panel (a) , if the economy is at output level Y1, there is:

In the province of Ontario, consumers pay harmonized sales tax (HST) of 13%. If an item costs $179 in Ontario, you will pay a total of $_____ at the register.

(Figure: Fiscal Policy Options) Use Figure: Fiscal Policy Options. If the aggregate demand curve is AD'':

(Figure: Short-Run Equilibrium) Use Figure: Short-Run Equilibrium. Given the scenario depicted in the diagram, an appropriate fiscal policy action would be:

In late 2001, Argentina defaulted on more than $90 billion worth of its external debt. This is an example of:

Suppose that the economy is in an inflationary gap. To move aggregate output closer to potential output, the BEST fiscal policy option is to:

_____ is an automatic stabilizer.

If aggregate output lies above potential output, then an appropriate fiscal policy would be to _____, which will shift the AD curve to the _____.

Why is fiscal policy very important at the zero lower bound?

Net government debt is:

The marginal tax rate is the:

Medicare provides health care to:

The standard deduction for a single person is $12,200. Based on this table, if your total income is $47,000, what is the amount of tax you will pay on your taxable income? $\begin{array} { c c c } \hline \begin{array} { l } \text { For taxable } \\\text { income over } \ldots\end{array} & \begin{array} { c } \ldots \text { but not } \\\text { over } \ldots\end{array} & \begin{array} { c } \ldots \text { the marginal } \\\text { tax rate is: }\end{array} \\\hline \$ 0 & \$ 9,700 & 10 \% \\\$ 9,700 & \$ 39,475 & 12 \% \\\$ 39,475 & \$ 84,200 & 22 \% \\\$ 84,200 & \$ 160,725 & 24 \% \\\$ 160,725 & \$ 204,100 & 32 \% \\\$ 204,100 & \$ 510,300 & 35 \% \\\$ 510,300 & - & 37 \% \\\hline\end{array}$

Why does discretionary fiscal policy experience time lags?