Trivia Quiz On Balanced Budget

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A balanced budget occurs when
- The national debt is reduced to zero dollars.
- A budget deficit during one year is matched by a budget surplus in the next year.
- Transfer payments equal tax revenues.
- Government expenditures equal tax revenues.

About This Quiz

Welcome to the trivia quiz on a balanced budget. When it comes to managing one's finances, it is important to have a basic budget where you have an estimate of how much expenses you will have and what amount of money you will allocate to it. This is done through different types of budgets. Take the quiz and see how See moremuch you understand the balanced budget.

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2.

A federal budget surplus
- Occurs when government expenditures exceed tax revenues.
- Occurs when tax revenues exceed government expenditures.
- Occurs when tax revenues exceed transfer payments.
- Occurs when monetary policy works in the opposite direction of fiscal policy.
- Is an impossibility.
Correct Answer

A. Occurs when tax revenues exceed government expenditures.

Explanation

A federal budget surplus occurs when tax revenues exceed government expenditures. This means that the government is collecting more money through taxes than it is spending on various programs and services. This can be seen as a positive outcome as it indicates that the government is effectively managing its finances and may have the ability to pay off debt or invest in other areas.

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3.

A federal budget deficit
- Occurs when government expenditures exceed tax revenues.
- Occurs when tax revenues exceed government expenditures.
- Occurs when transfer payments exceed tax revenues.
- Will always result when Congress and the president cannot agree on expenditures.
- Occurs when monetary policy works in the opposite direction of fiscal policy.
Correct Answer

A. Occurs when government expenditures exceed tax revenues.

Explanation

A federal budget deficit occurs when government expenditures exceed tax revenues. This means that the government is spending more money than it is bringing in through taxes. This can happen due to various reasons such as increased spending on programs or services, economic downturns leading to decreased tax revenues, or a combination of both. When there is a budget deficit, the government may need to borrow money to cover the shortfall, which can contribute to the national debt.

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4.

Fiscal policy refers to
- Efforts to balance a government's budget.
- Changes in the money supply to achieve particular economic goals.
- Changes in government expenditures and taxation to achieve particular economic goals.
- The change in private expenditures that occurs as a consequence of changes in government spending.
Correct Answer

A. Changes in government expenditures and taxation to achieve particular economic goals.

Explanation

Fiscal policy refers to the changes in government expenditures and taxation to achieve particular economic goals. This means that the government uses fiscal policy as a tool to influence the economy by adjusting its spending and tax policies. By increasing or decreasing government spending and taxes, the government can stimulate or slow down economic growth, control inflation, or address other economic objectives. This policy is used to promote economic stability and growth by managing the overall demand and supply in the economy.

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5.

Suppose Congress increases income taxes. This is an example of
- Expansionary fiscal policy.
- Expansionary monetary policy.
- Contractionary fiscal policy.
- Contractionary monetary policy.
Correct Answer

A. Contractionary fiscal policy.

Explanation

Increasing income taxes is an example of contractionary fiscal policy because it involves the government taking in more revenue from individuals and businesses. This reduces the disposable income and purchasing power of consumers, which can lead to a decrease in consumer spending. By reducing consumer spending, the government aims to slow down the economy and control inflation. This policy can also be used to reduce budget deficits or fund government programs.

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6.

Suppose Congress decreases income taxes. This is an example of
- Expansionary fiscal policy.
- Expansionary monetary policy.
- Contractionary fiscal policy.
- Contractionary monetary policy.
Correct Answer

A. Expansionary fiscal policy.

Explanation

The given scenario states that Congress decreases income taxes. This action is an example of expansionary fiscal policy. Fiscal policy refers to the government's use of taxation and spending to influence the economy. By decreasing income taxes, Congress is putting more money into the hands of individuals and businesses, which can stimulate economic growth and increase consumer spending. This expansionary fiscal policy aims to boost economic activity and reduce unemployment.

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7.

Expansionary fiscal policy actions include __________ government spending and/or __________ taxes, while contractionary fiscal policy actions include __________ government spending and/or __________ taxes.
- Increasing; increasing; decreasing; decreasing
- Decreasing; decreasing; increasing; increasing
- Increasing; decreasing; increasing; decreasing
- Decreasing; increasing; increasing; decreasing
- Increasing; decreasing; decreasing; increasing
Correct Answer

A. Increasing; decreasing; decreasing; increasing

Explanation

Expansionary fiscal policy actions involve increasing government spending and/or decreasing taxes. This is done to stimulate economic growth and increase aggregate demand. On the other hand, contractionary fiscal policy actions involve decreasing government spending and/or increasing taxes. This is done to slow down economic growth and reduce inflationary pressures.

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8.

Which of the following is an example of crowding out?
- A decrease in the rate of growth of the stock of money decreases GDP.
- A deficit causes an increase in interest rates, which causes a decrease in investment spending.
- An increase in tariffs causes a decrease in imports.
- A decrease in government housing subsidies causes an increase in private spending on housing.
Correct Answer

A. A deficit causes an increase in interest rates, which causes a decrease in investment spending.
9.

If there is complete crowding out as a result of an increase in government purchases, there will be
- A decrease in aggregate demand.
- No change in aggregate demand.
- An increase in aggregate demand.
- A downward movement along the aggregate demand curve.
Correct Answer

A. No change in aggregate demand.

Explanation

If there is complete crowding out as a result of an increase in government purchases, it means that the increase in government spending is fully offset by a decrease in private sector spending. In this scenario, the decrease in private sector spending cancels out the increase in government spending, resulting in no net change in aggregate demand. Therefore, the correct answer is no change in aggregate demand.

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10.

Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $700 million. This is an example of
- Incomplete crowding out.
- Complete crowding out.
- Zero crowding out.
- A and c
- None of the above
Correct Answer

A. Complete crowding out.

Explanation

This scenario demonstrates complete crowding out because the increase in government spending on public education is exactly offset by the decrease in individual spending on private education. As a result, there is no net increase in total spending on education, indicating that the government's actions have completely crowded out private investment in education.

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11.

The AD curve shifts to the left with a __________ in government purchases (G) or a __________ in taxes.
- Rise; rise
- Rise; fall
- Fall; rise
- Fall; fall
Correct Answer

A. Fall; rise

Explanation

When government purchases (G) fall, it means that the government is spending less on goods and services. This leads to a decrease in aggregate demand (AD), causing the AD curve to shift to the left. On the other hand, when taxes rise, it means that individuals and businesses have less disposable income to spend on goods and services. This also leads to a decrease in aggregate demand, causing the AD curve to shift to the left. Therefore, a fall in government purchases (G) and a rise in taxes both result in a leftward shift of the AD curve.

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12.

The AD curve shifts to the right with a __________ in government purchases (G) or a __________ in taxes.
- Rise; rise
- Rise; fall
- Fall; rise
- Fall; fall
Correct Answer

A. Rise; fall

Explanation

When government purchases (G) rise, it leads to an increase in aggregate demand (AD) because the government is spending more money in the economy. This causes the AD curve to shift to the right. On the other hand, when taxes fall, it puts more money in the hands of consumers, leading to an increase in consumption spending and therefore an increase in AD. So, a rise in government purchases and a fall in taxes both lead to an increase in AD and cause the AD curve to shift to the right.

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13.

Fiscal policy may not work as policymakers intend it to work because of
- Crowding out.
- Lags
- The position of the physical production possibilities frontier.
- A and b
- A, b, and c
Correct Answer

A. A and b

Explanation

Fiscal policy may not work as policymakers intend it to work because of two reasons: crowding out and lags. Crowding out refers to the situation where increased government spending leads to a decrease in private investment, reducing the overall impact of fiscal policy. Lags refer to the time it takes for fiscal policy measures to have their desired effect on the economy, which can result in delays and ineffective outcomes. Therefore, both crowding out and lags can hinder the effectiveness of fiscal policy in achieving its intended goals.

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14.

Suppose the government attempts to stimulate the economy by increasing purchases without increasing taxes. Which of the following statements is most likely to be accepted by someone who believes in crowding out?
- The government's actions will have their intended effect.
- The government's actions will cause businesses to become more optimistic about the economy, and they will increase their output even more than the government had intended.
- The government's actions will raise interest rates, causing decreased investment and consumption, and the economy will not expand as much as the government had intended.
- This is a trick question, because the federal government is required by law to increase taxes by the same amount as it increases expenditures.
Correct Answer

A. The government's actions will raise interest rates, causing decreased investment and consumption, and the economy will not expand as much as the government had intended.

Explanation

The answer suggests that someone who believes in crowding out would accept the statement that the government's actions will raise interest rates, leading to decreased investment and consumption. This is because the concept of crowding out suggests that when the government increases its spending without increasing taxes, it will compete with private borrowers for funds, causing interest rates to rise. Higher interest rates then discourage private investment and consumption, limiting the expansion of the economy.

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15.

Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $700 million. This is an example of
- Incomplete crowding out.
- Complete crowding out.
- Zero crowding out.
- A and c
- None of the above
Correct Answer

A. Complete crowding out.

Explanation

Complete crowding out occurs when an increase in government spending is exactly offset by a decrease in private spending. In this scenario, the government's increase in spending on public education is exactly matched by the decrease in individual spending on private education. As a result, there is no net increase in total spending on education, indicating complete crowding out.

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16.

The AD curve shifts to the left with a __________ in government purchases (G) or a __________ in taxes.
- Rise; rise
- Rise; fall
- Fall; rise
- Fall; fall
Correct Answer

A. Fall; rise

Explanation

When government purchases (G) fall, it results in a decrease in aggregate demand (AD) because there is less spending in the economy. This causes the AD curve to shift to the left. On the other hand, when taxes rise, it reduces the disposable income of individuals and businesses, leading to a decrease in spending and a decrease in AD. Therefore, a fall in government purchases (G) and a rise in taxes both result in a leftward shift of the AD curve.

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17.

Which of the following illustrates the data lag?
- The economy turns down on January 8, 2006, but policymakers do not figure this out until April 19, 2006.
- Policymakers wait and see what is really going on with the economy.
- Policymakers implement policy X on September 12, 2006, but the effects are not felt until six months later.
- The data lag is illustrated equally well by a, b, and c.
Correct Answer

A. The economy turns down on January 8, 2006, but policymakers do not figure this out until April 19, 2006.

Explanation

This answer illustrates the data lag because it shows a situation where the economy experiences a downturn, but policymakers are not aware of it until several months later. This delay in obtaining and analyzing the data reflects a lag in the information reaching the policymakers, which can affect their decision-making process and the timeliness of their actions.

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18.

Which of the following illustrates the wait-and-see lag?
- Policymakers believe an economic downturn has occurred, but they decide not to take action until they are sure.
- Policymakers are in the process of proposing policy measures to deal with the current economic slowdown.
- Policymakers first learn of the recession when it is five months old.
- Policymakers implement policy X, but it will be a few months before it starts working.
- Policymakers agree to policy X, but it will be at least two months before the policy is implemented.
Correct Answer

A. Policymakers believe an economic downturn has occurred, but they decide not to take action until they are sure.

Explanation

The wait-and-see lag refers to the delay in taking action by policymakers until they are certain about the economic situation. In this scenario, policymakers believe that an economic downturn has occurred, but they choose not to take any action until they have confirmed the situation. This illustrates the wait-and-see lag because policymakers are waiting before implementing any policy measures.

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19.

The lag between an increase in government spending and the impact of this increased spending on the economy is called the __________ lag.
- Effectiveness
- Transmission
- Legislative
- Data
Correct Answer

A. Effectiveness

Explanation

The lag between an increase in government spending and its impact on the economy refers to the time it takes for the increased spending to effectively stimulate economic growth. This lag is known as the "effectiveness" lag, as it represents the delay between the implementation of government spending policies and their actual influence on the economy. During this period, the government's spending initiatives need time to flow through the economy, create jobs, boost consumption, and generate economic activity.

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20.

The period that elapses between the passage of legislation reducing taxes and the time the tax cut is put into effect is called the __________ lag.
- Data
- Wait-and-see
- Legislative
- Transmission
Correct Answer

A. Transmission

Explanation

The period between the passage of legislation reducing taxes and the implementation of the tax cut is referred to as the "transmission" lag. This suggests that there is a delay or time gap between the decision to reduce taxes and the actual implementation of the tax cut. During this lag, the necessary processes and procedures are carried out to effectively transmit or put into effect the tax cut.

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21.

If an individual pays an additional $0.30 in taxes as a result of a $1.00 increase in income, that individual has a(n) __________ tax rate of 30 percent.
- Average
- Fixed
- Total
- Marginal
Correct Answer

A. Marginal

Explanation

The given information states that an individual pays an additional $0.30 in taxes as a result of a $1.00 increase in income. This indicates that the $0.30 increase in taxes is directly related to the $1.00 increase in income, showing the change in tax rate due to the change in income. Therefore, the correct answer is "marginal" tax rate, as it represents the rate at which taxes are applied to each additional dollar of income earned.

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22.

Taxable Income Taxes $0 - $23,000 9% of taxable income $23,001 - $42,000 $2,070 + 13% of everything over $23,000 $42,001 - $69,000 $4,540 + 17% of everything over $42,000 Refer to Exhibit 11-4. If a person’s taxable income is $20,000, how much does he pay in taxes?
- $180 $18,000 $180
- $2,000
- $18,000
- $1,800
Correct Answer

A. $1,800
23.

Taxable Income Taxes $0 - $23,000 9% of taxable income $23,001 - $42,000 $2,070 + 13% of everything over $23,000 $42,001 - $69,000 $4,540 + 17% of everything over $42,000 Refer to Exhibit 11-4. If a person’s taxable income is $30,000, how much does he pay in taxes?
- $1,345
- $1,950
- $3,900
- $2,980
Correct Answer

A. $2,980

Explanation

Based on the given tax brackets, if a person's taxable income is $30,000, they fall into the $23,001 - $42,000 bracket. The tax calculation for this bracket is $2,070 + 13% of everything over $23,000. Therefore, the person would pay $2,070 + 13% of ($30,000 - $23,000) = $2,070 + 13% of $7,000 = $2,070 + $910 = $2,980 in taxes.

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24.

Taxable Income Taxes $0 - $23,000 9% of taxable income $23,001 - $42,000 $2,070 + 13% of everything over $23,000 $42,001 - $69,000 $4,540 + 17% of everything over $42,000 Refer to Exhibit 11-4. If a person’s taxable income is $50,000, how much does he pay in taxes?
- $3,760
- $8,500
- $5,900
- $6,840
Correct Answer

A. $5,900

Explanation

Based on the given tax brackets, if a person's taxable income is $50,000, they would fall into the $42,001 - $69,000 bracket. In this bracket, they would pay $4,540 plus 17% of everything over $42,000. Therefore, the person would pay $4,540 + (17% * ($50,000 - $42,000)) = $4,540 + (0.17 * $8,000) = $4,540 + $1,360 = $5,900 in taxes.

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25.

Taxable Income Taxes $0 - $23,000 9% of taxable income $23,001 - $42,000 $2,070 + 13% of everything over $23,000 $42,001 - $69,000 $4,540 + 17% of everything over $42,000 Refer to Exhibit 11-4. If a person’s taxable income is $60,000, how much does he pay in taxes?
- $7,600.
- $10,200.
- $8,780.
- $15,300.
Correct Answer

A. $7,600.

Explanation

Based on the given tax brackets, the person falls into the third bracket with a taxable income of $60,000. Therefore, they will pay $4,540 (the base amount for the bracket) plus 17% of the amount over $42,000. The amount over $42,000 is $60,000 - $42,000 = $18,000. 17% of $18,000 is $3,060. Adding the base amount and the additional amount, the person will pay $4,540 + $3,060 = $7,600 in taxes.

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26.

Taxable Income Taxes $0 - $23,000 9% of taxable income $23,001 - $42,000 $2,070 + 13% of everything over $23,000 $42,001 - $69,000 $4,540 + 17% of everything over $42,000 Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,000th dollar earned?
- 9%
- 13%
- 17%
- It is impossible to determine the answer to this question.
Correct Answer

A. 9%

Explanation

Based on the information provided in Exhibit 11-4, the marginal tax rate on the 23,000th dollar earned is 9%. This is because the tax rate for the income range of $0 - $23,000 is 9% of taxable income. Therefore, the 23,000th dollar falls within this income range and is subject to a 9% tax rate.

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27.

Suppose aggregate demand is too high to bring about the Natural Real GDP level. A Keynesian policy prescription would call for a(n) _____________________ to close this inflationary gap.
- Increase in government spending
- Decrease in government spending
- Increase in taxes
- Decrease in taxes
- B or c
Correct Answer

A. B or c

Explanation

A Keynesian policy prescription would call for a decrease in government spending or an increase in taxes to close this inflationary gap. This is because both measures would reduce aggregate demand, which is too high, and help bring it back to the Natural Real GDP level. By decreasing government spending, there would be less money circulating in the economy, leading to a decrease in aggregate demand. Similarly, by increasing taxes, individuals and businesses would have less disposable income, reducing their ability to spend and again decreasing aggregate demand.

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28.

If the structural deficit is $330 billion and the cyclical deficit is $80 billion, it follows that the __________ is __________ billion.
- Public debt; $410
- Total budget deficit; $250
- Total budget deficit; $410
- Net public debt; $250
- None of the above
Correct Answer

A. Total budget deficit; $410

Explanation

The structural deficit refers to the portion of the budget deficit that exists even when the economy is at full employment, while the cyclical deficit is the part that is due to the economic cycle. Therefore, if the structural deficit is $330 billion and the cyclical deficit is $80 billion, the total budget deficit would be the sum of these two, which is $410 billion.

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29.

If an economy has a structural surplus and a cyclical deficit, it may be concluded that
- Fiscal policy is expansionary.
- Fiscal policy is contractionary.
- The economy is in a boom.
- The economy is in a recession.
Correct Answer

A. Fiscal policy is contractionary.

Explanation

If an economy has a structural surplus, it means that the government's revenue exceeds its expenditure on a long-term basis. On the other hand, a cyclical deficit indicates that the government's revenue is lower than its expenditure due to a temporary economic downturn. Therefore, if an economy has a structural surplus and a cyclical deficit, it suggests that the government is intentionally reducing its expenditure to counterbalance the temporary economic downturn. This indicates a contractionary fiscal policy, aimed at reducing the deficit and stabilizing the economy in the long run.

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30.

Suppose that government expenditures are currently $700 billion and tax revenues are currently $550 billion. Assume further that the government estimates that if the economy were operating at full employment government expenditures would only be $685 billion and tax revenues would be $600 billion. In this case, the total budget deficit is _____________ billion.
- $85
- $65
- $150
- $215
Correct Answer

A. $65

Explanation

The total budget deficit can be calculated by subtracting tax revenues from government expenditures. In this case, the government expenditures are $700 billion and tax revenues are $550 billion, resulting in a deficit of $150 billion. However, if the economy were operating at full employment, government expenditures would only be $685 billion and tax revenues would be $600 billion. Therefore, the deficit would decrease to $85 billion. Since the question asks for the difference between the current deficit and the deficit at full employment, the correct answer is $65 billion ($150 billion - $85 billion).

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31.

Suppose government expenditures = $1,400, taxes are a flat 18 percent of GDP, GDP = $6,200, and full-employment GDP = $7,000. What is the budget deficit?
- $116
- $284
- $140
- $144
Correct Answer

A. $284

Explanation

The budget deficit can be calculated by subtracting government revenues from government expenditures. In this case, government expenditures are given as $1,400. Taxes are a flat 18 percent of GDP, and since GDP is given as $6,200, taxes can be calculated as 0.18 * $6,200 = $1,116. Therefore, the budget deficit is $1,400 - $1,116 = $284.

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32.

Suppose that government expenditures are currently $700 billion and tax revenues are currently $550 billion. Assume further that the government estimates that if the economy were operating at full employment government expenditures would only be $685 billion and tax revenues would be $600 billion. In this case, the structural deficit is _____________ billion.
- $85
- $65
- $150
- $215
Correct Answer

A. $85

Explanation

The structural deficit is calculated by subtracting the estimated tax revenues at full employment ($600 billion) from the estimated government expenditures at full employment ($685 billion). Therefore, the structural deficit is $85 billion.

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33.

Suppose government expenditures = $1,400, taxes are a flat 18 percent of GDP, GDP = $6,200, and full-employment GDP = $7,000. What is the structural deficit?
- $116
- $284
- $140
- $144
Correct Answer

A. $140

Explanation

The structural deficit is the difference between government expenditures and tax revenue at full-employment GDP. In this case, the government expenditures are given as $1,400 and taxes are 18 percent of GDP. Therefore, tax revenue can be calculated as 18 percent of $7,000 (full-employment GDP) which equals $1,260. The structural deficit is then the difference between government expenditures ($1,400) and tax revenue ($1,260), which is $140.

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34.

Suppose government expenditures = $1,400, taxes are a flat 18 percent of GDP, GDP = $6,200, and full-employment GDP = $7,000. What is the cyclical deficit?
- $1,260
- $284
- $144
- $1,008
Correct Answer

A. $144

Explanation

The cyclical deficit is calculated by subtracting the potential GDP from the actual GDP and then multiplying it by the tax rate. In this case, the potential GDP is $7,000 and the actual GDP is $6,200, resulting in a difference of $800. The tax rate is 18 percent, so multiplying $800 by 0.18 gives us $144, which is the cyclical deficit.

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35.

That part of the deficit due to output being below Natural Real GDP is called the __________ deficit.
- Net
- Gross
- Cyclical
- Structural
Correct Answer

A. Cyclical

Explanation

The part of the deficit due to output being below Natural Real GDP is called the cyclical deficit. This refers to the portion of the deficit that is caused by the economic cycle, specifically when the economy is operating below its full potential. When output is below Natural Real GDP, it means that there is a gap between actual output and potential output, resulting in a decrease in tax revenues and an increase in government spending. This cyclical deficit is temporary and can be reduced as the economy improves and reaches its full capacity.

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36.

The deficit that exists when the economy operates at full employment is called the __________ deficit.
- Net
- Gross
- Cyclical
- Structural
Correct Answer

A. Structural

Explanation

The deficit that exists when the economy operates at full employment is called the structural deficit. This refers to a deficit that is not influenced by the business cycle or temporary economic fluctuations, but rather represents a long-term imbalance between government spending and revenue. It is considered a more persistent and fundamental issue that requires structural changes in fiscal policies to address.

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37.

Which of the following statements is true?
- A budget deficit occurs when government expenditures exceed tax receipts during any single year.
- The public debt is the total amount the federal government owes its creditors.
- The gross public debt is greater than the net public debt.
- B and c
- A, b, and c
Correct Answer

A. A, b, and c

Explanation

A budget deficit occurs when government expenditures exceed tax receipts during any single year. The public debt is the total amount the federal government owes its creditors. The gross public debt is greater than the net public debt. This means that all of the statements in options a, b, and c are true.

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38.

Senator Smith proposes that the income tax structure be revised to have two tax rates. The first, 16 percent, applies to persons whose income is between $0 and $40,000 a year. The second, 23 percent, applies to persons whose income is more than $40,000 a year. This is a
- Regressive income tax structure.
- Proportional income tax structure.
- Progressive income tax structure.
- Cyclical income tax structure.
Correct Answer

A. Progressive income tax structure.

Explanation

The given tax structure proposes higher tax rates for individuals with higher incomes, which is a characteristic of a progressive income tax structure. In a progressive tax system, the tax burden increases as income increases, aiming to distribute the tax burden more fairly among different income groups. In this case, the tax rate of 16 percent for incomes up to $40,000 and 23 percent for incomes above $40,000 reflects a progressive approach.

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39.

Jim and Janet each buy a computer and each pays $200 in sales taxes. Jim's annual income is $40,000 and Janet's annual income is $60,000. The sales tax is
- Progressive
- Cyclical
- Proportional.
- Regressive
Correct Answer

A. Regressive

Explanation

The sales tax in this scenario is regressive. This is because both Jim and Janet pay the same amount of sales tax ($200), regardless of their income levels. In a regressive tax system, the tax burden falls more heavily on lower-income individuals compared to higher-income individuals. In this case, $200 represents a larger proportion of Jim's income (0.5%) compared to Janet's income (0.33%), making it regressive.

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40.

A "flat tax" is another term for __________ tax.
- A progressive
- A proportional
- A regressive
- The inflation
Correct Answer

A. A proportional

Explanation

A "flat tax" refers to a tax system where everyone, regardless of their income level, pays the same percentage of their income as tax. This is also known as a proportional tax because the tax rate remains constant regardless of income. In a progressive tax system, the tax rate increases as income increases, while in a regressive tax system, the tax rate decreases as income increases. The term "inflation" does not relate to the concept of a flat tax.

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41.

The U.S. income tax is currently a __________ tax.
- Progressive
- Proportional
- Regressive
- Proactive
Correct Answer

A. Progressive

Explanation

The U.S. income tax is currently a progressive tax. This means that the tax rate increases as the income level increases. In a progressive tax system, individuals with higher incomes pay a higher percentage of their income in taxes compared to those with lower incomes. This is done in an effort to redistribute wealth and promote a more equitable distribution of resources.

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42.

The top 1% of income earners in the U.S. (those with the highest taxable incomes) pay
- About the same percentage of their incomes in tax as the average U.S. taxpayer.
- A much lower percentage of their incomes in tax than the average U.S. taxpayer.
- A much higher percentage of their incomes in tax than the average U.S. taxpayer.
- About 15 percent of their incomes in income taxes
- A and d
Correct Answer

A. A much higher percentage of their incomes in tax than the average U.S. taxpayer.

Explanation

The top 1% of income earners in the U.S. pay a much higher percentage of their incomes in tax than the average U.S. taxpayer. This suggests that the tax burden falls disproportionately on the wealthy, as they are required to contribute a larger portion of their income towards taxes compared to the average taxpayer.

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43.

What are the two types of discretionary fiscal policy?
- Automatic and expansionary
- Expansionary and contractionary
- Expansionary and recessionary
- Automatic and contractionary
Correct Answer

A. Expansionary and contractionary

Explanation

Discretionary fiscal policy refers to the deliberate changes in government spending and taxation to influence the economy. Expansionary fiscal policy involves increasing government spending or reducing taxes to stimulate economic growth and increase aggregate demand. On the other hand, contractionary fiscal policy involves reducing government spending or increasing taxes to slow down economic growth and decrease aggregate demand. Therefore, the correct answer is expansionary and contractionary as these are the two types of discretionary fiscal policy.

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44.

If the economy is on the downward-sloping portion of the Laffer curve, a(an) __________ in tax rates will __________ tax revenues.
- Decrease; lower
- Increase; raise
- Decrease; raise
- Decrease; not change
- Increase; not change
Correct Answer

A. Decrease; raise

Explanation

When the economy is on the downward-sloping portion of the Laffer curve, decreasing tax rates will raise tax revenues. This is because lower tax rates incentivize economic activity and encourage individuals and businesses to earn and report more income. As a result, the overall tax base expands, offsetting the decrease in tax rates and leading to an increase in tax revenues.

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45.

If there is complete crowding out, the effective value of the multiplier is
- Zero
- One
- Infinite
- There is not enough information to answer the question.
Correct Answer

A. Zero

Explanation

Complete crowding out refers to a situation where an increase in government spending is fully offset by a decrease in private spending, resulting in no net increase in overall economic activity. In this scenario, the effective value of the multiplier is zero because any increase in government spending is completely offset by a decrease in private spending, leading to no additional economic output or growth.

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46.

A curve showing the relationship between tax rates and tax revenues is called a __________ curve.
- Phillips
- Keynesian
- Gaussian
- Laffer
Correct Answer

A. Laffer

Explanation

A curve showing the relationship between tax rates and tax revenues is called a Laffer curve. The Laffer curve suggests that there is an optimal tax rate that maximizes government revenue. Initially, as tax rates increase, tax revenues also increase. However, beyond a certain point, increasing tax rates further leads to a decrease in tax revenues. This is because high tax rates can discourage economic activity and incentivize tax avoidance or evasion. The Laffer curve concept is often used in discussions about tax policy and the trade-off between tax rates and government revenue.

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47.

If an individual pays an additional $0.30 in taxes as a result of a $1.00 increase in income, that individual has a(n) __________ tax rate of 30 percent.
- Average
- Fixed
- Total
- Marginal
Correct Answer

A. Marginal

Explanation

The given information states that an individual pays an additional $0.30 in taxes as a result of a $1.00 increase in income. This indicates that the tax rate is calculated based on the additional income earned, which is the definition of a marginal tax rate. Therefore, the correct answer is marginal.

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48.

The period that elapses between the passage of legislation reducing taxes and the time the tax cut is put into effect is called the __________ lag.
- Data
- Wait-and-see
- Legislative
- Transmission
Correct Answer

A. Transmission

Explanation

The period that elapses between the passage of legislation reducing taxes and the time the tax cut is put into effect is called the "transmission" lag. This refers to the delay or time gap between the decision to implement a tax cut and its actual implementation. During this lag, the necessary administrative and bureaucratic processes are carried out to ensure the smooth transition and execution of the tax cut.

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49.

Elaine's taxable income increases by $1 and her tax payment increases by $0.28. Her marginal tax rate is
- 72 percent.
- 28 percent.
- 56 percent.
- There is not enough information to answer the question.
Correct Answer

A. 28 percent.

Explanation

If Elaine's taxable income increases by $1 and her tax payment increases by $0.28, it means that her tax rate is $0.28 for every $1 of taxable income. To find her marginal tax rate, we need to calculate the percentage of the tax payment increase compared to the increase in taxable income. Since $0.28 is 28% of $1, her marginal tax rate is 28 percent.

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Trivia Quiz On Balanced Budget

A balanced budget occurs when

Quiz Preview

A federal budget surplus

A federal budget deficit

Fiscal policy refers to

Suppose Congress increases income taxes. This is an example of

Suppose Congress decreases income taxes. This is an example of

Expansionary fiscal policy actions include __________ government spending and/or __________ taxes, while contractionary fiscal policy actions include __________ government spending and/or __________ taxes.

Which of the following is an example of crowding out?

If there is complete crowding out as a result of an increase in government purchases, there will be

Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $700 million. This is an example of

The AD curve shifts to the left with a __________ in government purchases (G) or a __________ in taxes.

The AD curve shifts to the right with a __________ in government purchases (G) or a __________ in taxes.

Fiscal policy may not work as policymakers intend it to work because of

Suppose the government attempts to stimulate the economy by increasing purchases without increasing taxes. Which of the following statements is most likely to be accepted by someone who believes in crowding out?

Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $700 million. This is an example of

The AD curve shifts to the left with a __________ in government purchases (G) or a __________ in taxes.

Which of the following illustrates the data lag?

Which of the following illustrates the wait-and-see lag?

The lag between an increase in government spending and the impact of this increased spending on the economy is called the __________ lag.

The period that elapses between the passage of legislation reducing taxes and the time the tax cut is put into effect is called the __________ lag.

If an individual pays an additional $0.30 in taxes as a result of a $1.00 increase in income, that individual has a(n) __________ tax rate of 30 percent.

Taxable Income Taxes $0 - $23,000 9% of taxable income $23,001 - $42,000 $2,070 + 13% of everything over $23,000 $42,001 - $69,000 $4,540 + 17% of everything over $42,000 Refer to Exhibit 11-4. If a person’s taxable income is $20,000, how much does he pay in taxes?

Taxable Income Taxes $0 - $23,000 9% of taxable income $23,001 - $42,000 $2,070 + 13% of everything over $23,000 $42,001 - $69,000 $4,540 + 17% of everything over $42,000 Refer to Exhibit 11-4. If a person’s taxable income is $30,000, how much does he pay in taxes?

Taxable Income Taxes $0 - $23,000 9% of taxable income $23,001 - $42,000 $2,070 + 13% of everything over $23,000 $42,001 - $69,000 $4,540 + 17% of everything over $42,000 Refer to Exhibit 11-4. If a person’s taxable income is $50,000, how much does he pay in taxes?

Taxable Income Taxes $0 - $23,000 9% of taxable income $23,001 - $42,000 $2,070 + 13% of everything over $23,000 $42,001 - $69,000 $4,540 + 17% of everything over $42,000 Refer to Exhibit 11-4. If a person’s taxable income is $60,000, how much does he pay in taxes?

Taxable Income Taxes $0 - $23,000 9% of taxable income $23,001 - $42,000 $2,070 + 13% of everything over $23,000 $42,001 - $69,000 $4,540 + 17% of everything over $42,000 Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,000th dollar earned?

Suppose aggregate demand is too high to bring about the Natural Real GDP level. A Keynesian policy prescription would call for a(n) _____________________ to close this inflationary gap.

If the structural deficit is $330 billion and the cyclical deficit is $80 billion, it follows that the __________ is __________ billion.

If an economy has a structural surplus and a cyclical deficit, it may be concluded that

Suppose government expenditures = $1,400, taxes are a flat 18 percent of GDP, GDP = $6,200, and full-employment GDP = $7,000. What is the budget deficit?

Suppose government expenditures = $1,400, taxes are a flat 18 percent of GDP, GDP = $6,200, and full-employment GDP = $7,000. What is the structural deficit?

Suppose government expenditures = $1,400, taxes are a flat 18 percent of GDP, GDP = $6,200, and full-employment GDP = $7,000. What is the cyclical deficit?

That part of the deficit due to output being below Natural Real GDP is called the __________ deficit.

The deficit that exists when the economy operates at full employment is called the __________ deficit.

Which of the following statements is true?

Senator Smith proposes that the income tax structure be revised to have two tax rates. The first, 16 percent, applies to persons whose income is between $0 and $40,000 a year. The second, 23 percent, applies to persons whose income is more than $40,000 a year. This is a

Jim and Janet each buy a computer and each pays $200 in sales taxes. Jim's annual income is $40,000 and Janet's annual income is $60,000. The sales tax is

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

The U.S. income tax is currently a __________ tax.

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

What are the two types of discretionary fiscal policy?

If the economy is on the downward-sloping portion of the Laffer curve, a(an) __________ in tax rates will __________ tax revenues.

If there is complete crowding out, the effective value of the multiplier is

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

If an individual pays an additional $0.30 in taxes as a result of a $1.00 increase in income, that individual has a(n) __________ tax rate of 30 percent.

The period that elapses between the passage of legislation reducing taxes and the time the tax cut is put into effect is called the __________ lag.

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

Expansionary fiscal policy actions include government spending and/or taxes, while contractionary fiscal policy actions include government spending and/or taxes.

The AD curve shifts to the left with a in government purchases (G) or a in taxes.

The AD curve shifts to the right with a in government purchases (G) or a in taxes.

The AD curve shifts to the left with a in government purchases (G) or a in taxes.

If the structural deficit is $330 billion and the cyclical deficit is $80 billion, it follows that the is billion.

If the economy is on the downward-sloping portion of the Laffer curve, a(an) in tax rates will tax revenues.