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The economy is in a recessionary gap and a Keynesian economist advocates expansionary fiscal policy.What is a likely reason this economist advocates expansionary fiscal policy?


A) The economist believes the economy is stuck in a recessionary gap and crowding out will be complete.
B) The economist believes the economy is stuck in a recessionary gap and there will be no crowding out.
C) The economist believes that wages are too flexible and that crowding out will be incomplete.
D) The economist believes the AD curve is downward-sloping,the SRAS curve is upward-sloping,and prices are flexible.
E) none of the above

F) D) and E)
G) C) and D)

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Supply-side economists believe reductions in tax rates can


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) C) and D)
F) A) and C)

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When Congress and the President agree to increase income taxes,this is an example of contractionary fiscal policy.

A) True
B) False

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Exhibit 11-4 Exhibit 11-4 -Use the information provided in Exhibit 11-4.What is the marginal tax rate on the 23,001st dollar of taxable income earned? A) 15% B) 20% C) 25% D) 30% E) There is not enough information provided to answer this question. -Use the information provided in Exhibit 11-4.What is the marginal tax rate on the 23,001st dollar of taxable income earned?


A) 15%
B) 20%
C) 25%
D) 30%
E) There is not enough information provided to answer this question.

F) A) and C)
G) A) and B)

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With complete crowding out,an increase in government spending


A) is completely offset by a reduction in private spending.
B) is matched by an increase in private spending.
C) results in an increase in aggregate supply.
D) results in an increase in aggregate demand.

E) A) and B)
F) B) and D)

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__________ flows from government to households.


A) A transfer payment
B) A tax payment
C) The Laffer Curve
D) Crowding out

E) A) and B)
F) A) and C)

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According to Keynesian theory,a recessionary gap can be closed using expansionary fiscal policy.

A) True
B) False

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Exhibit 11-5 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) .The value added by the farmer is ______________.If the government imposes a VAT rate of 10 percent,the farmer must pay ___________ in VAT tax and will need to raise the price he charges the miller to _______________. A) $0.60;$0.06;$0.66 B) $0.80;$0.08;$0.88 C) $1.40;$0.14;$1.54 D) $0.60;$0.60;$1.20 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) .The value added by the farmer is ______________.If the government imposes a VAT rate of 10 percent,the farmer must pay ___________ in VAT tax and will need to raise the price he charges the miller to _______________.


A) $0.60;$0.06;$0.66
B) $0.80;$0.08;$0.88
C) $1.40;$0.14;$1.54
D) $0.60;$0.60;$1.20

E) All of the above
F) C) and D)

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


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

F) A) and B)
G) D) and E)

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Exhibit 11-5 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 _______________. A) $0.06;$2.25 B) $0.11;$2.75 C) $0.25;$2.75 D) $0.60;$2.57 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 _______________.


A) $0.06;$2.25
B) $0.11;$2.75
C) $0.25;$2.75
D) $0.60;$2.57

E) B) and D)
F) A) and C)

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A permanent marginal tax decrease is likely to


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.

E) A) and B)
F) B) and C)

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Tax revenues can be found by


A) multiplying the tax base by the (average) tax rate.
B) dividing the tax base by the (average) tax rate.
C) summing the tax base and the (average) tax rate.
D) multiplying taxable income by the marginal tax rate.

E) A) and B)
F) All of the above

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


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

F) A) and D)
G) A) and C)

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An example of contractionary fiscal policy is


A) an increase in government expenditures,or an increase in taxes,or both.
B) a decrease in government expenditures,or a decrease in taxes,or both.
C) an increase in government expenditures,or a decrease in taxes,or both.
D) a decrease in government expenditures,or an increase in taxes,or both.
E) increasing government expenditures while holding taxes constant.

F) A) and B)
G) B) and C)

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An example of contractionary fiscal policy is


A) increasing government spending.
B) increasing taxes.
C) decreasing government spending.
D) decreasing taxes.
E) b and c

F) B) and E)
G) C) and D)

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A balanced budget occurs when


A) the national debt is reduced to zero dollars.
B) a budget deficit during one year is matched by a budget surplus in the next year.
C) transfer payments equal tax revenues.
D) government expenditures equal tax revenues.
E) the deficit-GDP ratio equals one.

F) B) and C)
G) A) and D)

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Which of the following is an example of crowding out?


A) A decrease in the rate of growth of the money supply which causes a decrease in Real GDP.
B) A 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.

E) None of the above
F) B) and C)

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If company Z is receiving a government subsidy,the government is taking money from ____________ and giving it to company Z.If company Z is getting a tax deduction (instead of receiving a subsidy) then company Z is ______________________.


A) taxpayers;paying more in taxes than it would without the tax deduction
B) taxpayers;subsidizing the taxpayers
C) Congress;paying more in taxes than it would without the tax deduction
D) taxpayers;paying less in taxes than it would without the tax deduction

E) B) and C)
F) None of the above

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Exhibit 11-4 Exhibit 11-4 -Refer to Exhibit 11-4.If a person's taxable income is $30,000,how much does he pay in taxes? A) $4,345 B) $1,400 C) $3,900 D) $4,850 -Refer to Exhibit 11-4.If a person's taxable income is $30,000,how much does he pay in taxes?


A) $4,345
B) $1,400
C) $3,900
D) $4,850

E) A) and D)
F) A) and C)

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Which of the following statements is true?


A) A budget deficit occurs when government expenditures exceed tax receipts during any single year.
B) The public debt is the total amount the federal government owes its creditors.
C) The public debt is greater than the net public debt.
D) b and c
E) a,b,and c

F) A) and E)
G) A) and D)

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