Question 1

The three federal taxes that together accounted for 91 percent of all federal government tax receipts in 2011 were

Accepted Answer

A)   individual income tax, corporate income tax, property tax.
B)   corporate income tax, national consumption tax, estate tax.
C)   individual income tax, social security tax, corporate income tax.
D)   social security tax, Medicare tax, estate tax.
E)   none of the aboveF) A) and B)
G) C) and D)

Question 2

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 cF) C) and D)
G) B) and D)

Question 3

List and describe three of the five different lags that can occur which may impede the effectiveness of the use of fiscal policy.

Accepted Answer

Data lag - The time it takes for policym...

Question 4

Suppose that income tax revenues are maximized at an average (income) tax rate of 45 percent.If the Laffer curve is a correct diagrammatic representation of the relationship between tax rates and tax revenue,it follows that a tax rate of

Accepted Answer

A)   35 percent will reduce tax revenues.
B)   48 percent will reduce tax revenues.
C)   48 percent will generate as much tax revenue as a tax rate of 45 percent.
D)   35 percent will generate as much tax revenue as a tax rate of 45 percent.
E)   a and bF) B) and E)
G) A) and B)

Question 5

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 dF) A) and D)
G) A) and C)

Question 6

Explain how tax cuts can impact both aggregate demand and aggregate supply.Give an example of each.

Accepted Answer

A tax cut can increase consumption or in...

Question 7

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 42,001st 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.F) B) and D)
G) All of the above

Question 8

Supply-side economists believe reductions in tax rates can

Accepted Answer

A)   shift the aggregate demand curve to the left.
B)   shift the short run aggregate supply curve to the left.
C)   increase output and lower prices.
D)   decrease output and lower prices.E) B) and C)
F) C) and D)

Question 9

Explain how a value-added tax (VAT)works and how it differs from a sales tax. What impact does a VAT have on government revenue and the price of products paid by consumers?

Accepted Answer

A VAT is a tax applied to the value adde...

Question 10

A federal budget deficit

Accepted Answer

A)   occurs when government expenditures exceed tax revenues.
B)   occurs when tax revenues exceed government expenditures.
C)   occurs when transfer payments exceed tax revenues.
D)   will always result when Congress and the president cannot agree on expenditures.
E)   occurs when monetary policy works in the opposite direction of fiscal policy.F) D) and E)
G) A) and D)

Question 11

Congress cuts income taxes.Is this an example of a demand-side or supply-side fiscal policy action?

Accepted Answer

A)   Demand-side, since a cut in taxes can raise consumption and investment.
B)   Supply-side, since a cut in taxes can shift the SRAS and LRAS curves to the right.
C)   Neither demand-side nor supply-side, since what happens on the demand-side completely offsets what happens on the supply-side.
D)   a and bE) All of the above
F) B) and C)

Question 12

The United States currently has a progressive income tax structure.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Both Jones and Smith agree that the economy is in a recessionary gap.Jones proposes a tax cut and believes that it will raise Real GDP and lower the price level.Smith agrees that a tax cut will raise Real GDP,but he argues that it will not lower the price level in the short run. It follows that

Accepted Answer

A)   both Jones and Smith believe that lower taxes will shift the AD curve rightward, but will not shift the SRAS curve.
B)   both Jones and Smith believe that lower taxes will shift the SRAS curve rightward, but will not shift the AD curve.
C)   Jones believes that the tax cut will shift the SRAS curve rightward and the AD curve will not shift. Smith believes that the AD curve will shift rightward and the SRAS curve will not shift.
D)   Smith believes that the tax cut will shift the SRAS curve rightward and the AD curve will not shift. Jones believes that the AD curve will shift rightward and the SRAS curve will not shift.E) A) and B)
F) A) and C)

Question 15

The economy is in a recessionary gap,wages are inflexible downward,and there is complete crowding out.Which of the following is consistent with this state of affairs?

Accepted Answer

A)   The economy will soon self-regulate and produce Natural Real GDP.
B)   Expansionary fiscal policy will be effective at removing the economy from the recessionary gap.
C)   If expansionary fiscal policy is implemented, the AD curve will shift to the right, and eventually the price level and Real GDP will rise.
D)   b and c
E)   none of the aboveF) C) and D)
G) None of the above

Question 16

The marginal tax rate is equal to the

Accepted Answer

A)   total amount of a person's tax payment divided by the total amount of the person's taxable income.
B)   total amount of a person's tax payment divided by the change in the person's taxable income.
C)   change in the person's tax payment divided by the total amount of the person's taxable income.
D)   change in the person's tax payment divided by the change in the person's taxable income.E) B) and D)
F) B) and C)

Question 17

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,000th of 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.F) A) and C)
G) B) and D)

Question 18

Exhibit 11-4
 
-Refer to Exhibit 11-4. If a person's taxable income is $50,000,how much does he pay in taxes?

Accepted Answer

A)   $9,250
B)   $8,500
C)   $24,150
D)   $12,500E) All of the above
F) C) and D)

Question 19

Which of the following is not an example of a "lag" that diminishes the potential impact of fiscal policy?

Accepted Answer

A)   the data lag
B)   the recessionary lag
C)   the legislative lag
D)   the transmission lag
E)   None of the above; all are examples of such lags.F) B) and D)
G) D) and E)

Question 20

With a progressive income tax,as real income rises,one's tax burden rises more than proportionally.

Accepted Answer

A) True 
 B)False

Exam 11: Fiscal Policy and the Federal Budget

The three federal taxes that together accounted for 91 percent of all federal government tax receipts in 2011 were

Correct AnswerverifiedShow Answer

Suppose that income tax revenues are maximized at an average (income) tax rate of 45 percent.If the Laffer curve is a correct diagrammatic representation of the relationship between tax rates and tax revenue,it follows that a tax rate of

Correct AnswerverifiedShow Answer

Exhibit 11-4 -Refer to Exhibit 11-4. If a person's taxable income is $50,000,how much does he pay in taxes?

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A federal budget deficit

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Both Jones and Smith agree that the economy is in a recessionary gap.Jones proposes a tax cut and believes that it will raise Real GDP and lower the price level.Smith agrees that a tax cut will raise Real GDP,but he argues that it will not lower the price level in the short run. It follows that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,000th of dollar of taxable income earned?

Correct AnswerverifiedShow Answer

Explain how a value-added tax (VAT)works and how it differs from a sales tax. What impact does a VAT have on government revenue and the price of products paid by consumers?

Correct AnswerverifiedA VAT is a tax applied to the value adde...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 42,001st dollar of taxable income earned?

Correct AnswerverifiedShow Answer

List and describe three of the five different lags that can occur which may impede the effectiveness of the use of fiscal policy.

Correct AnswerverifiedData lag - The time it takes for policym...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The United States currently has a progressive income tax structure.

Correct AnswerverifiedShow Answer

Explain how tax cuts can impact both aggregate demand and aggregate supply.Give an example of each.

Correct AnswerverifiedA tax cut can increase consumption or in...View AnswerShow Answer

Congress cuts income taxes.Is this an example of a demand-side or supply-side fiscal policy action?

Correct AnswerverifiedShow Answer

Supply-side economists believe reductions in tax rates can

Correct AnswerverifiedShow Answer

The economy is in a recessionary gap,wages are inflexible downward,and there is complete crowding out.Which of the following is consistent with this state of affairs?

Correct AnswerverifiedShow Answer

Which of the following is not an example of a "lag" that diminishes the potential impact of fiscal policy?

Correct AnswerverifiedShow Answer

With a progressive income tax,as real income rises,one's tax burden rises more than proportionally.

Correct AnswerverifiedShow Answer

The marginal tax rate is equal to the

Correct AnswerverifiedShow Answer

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A VAT is a tax applied to the value adde...
View Answer

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Data lag - The time it takes for policym...
View Answer

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A tax cut can increase consumption or in...
View Answer

Correct Answer
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