Test 3 Econ

145 Questions | Total Attempts: 189

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Test 3 Econ

Questions and Answers
  • 1. 
       94.   Both Jones and Smith agree that the economy is in a recessionary gap. Jones proposes a tax cut. Smith couldn't agree more. Jones says that lower taxes will result in higher Real GDP. Again, Smith couldn't agree more. It follows that
    • A. 

      Both Jones and Smith believe that lower taxes will raise aggregate demand, but not aggregate supply.

    • B. 

      Both Jones and Smith believe that lower taxes will raise aggregate supply, but not aggregate demand.

    • C. 

      One person believes lower taxes will raise Real GDP by increasing aggregate demand and the other person believes lower taxes will raise Real GDP by increasing aggregate supply.

    • D. 

      Both Jones and Smith believe that lower taxes will raise Real GDP by increasing both aggregate demand and aggregate supply.

    • E. 

      C or d

  • 2. 
       97.   Which piece of evidence is consistent with zero crowding out?
    • A. 

      Government purchases rise and Real GDP does not change.

    • B. 

      Government purchases rise and investment spending declines.

    • C. 

      Government purchases rise and net exports decline.

    • D. 

      Government purchases rise and consumption declines.

    • E. 

      None of the above

  • 3. 
    The AD curve shifts to the left with a __________ in government purchases (G) or a __________ in taxes.
    • A. 

      Rise; rise

    • B. 

      Rise; fall

    • C. 

      Fall; rise

    • D. 

      Fall; fall

  • 4. 
    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.
    • A. 

      Increase in government spending

    • B. 

      Decrease in government spending

    • C. 

      Increase in taxes

    • D. 

      Decrease in taxes

    • E. 

      B or c

  • 5. 
       96.   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

  • 6. 
    The AD curve shifts to the left with a __________ in government purchases (G) or a __________ in taxes.
    • A. 

      Rise; rise

    • B. 

      Rise; fall

    • C. 

      Fall; rise

    • D. 

      Fall; fall

  • 7. 
    Which of the following illustrates the data lag?
    • A. 

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

    • B. 

      Policymakers wait and see what is really going on with the economy.

    • C. 

      Policymakers implement policy X on September 12, 2006, but the effects are not felt until six months later.

    • D. 

      The data lag is illustrated equally well by a, b, and c.

  • 8. 
    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.
    • A. 

      $85

    • B. 

      $65

    • C. 

      $150

    • D. 

      $215

  • 9. 
    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?
    • A. 

      $116

    • B. 

      $284

    • C. 

      $140

    • D. 

      $144

  • 10. 
    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.
    • A. 

      $85

    • B. 

      $65

    • C. 

      $150

    • D. 

      $215

  • 11. 
    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?
    • A. 

      $116

    • B. 

      $284

    • C. 

      $140

    • D. 

      $144

  • 12. 
    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?
    • A. 

      $1,260

    • B. 

      $284

    • C. 

      $144

    • D. 

      $1,008

  • 13. 
    That part of the deficit due to output being below Natural Real GDP is called the __________ deficit.
    • A. 

      Net

    • B. 

      Gross

    • C. 

      Cyclical

    • D. 

      Structural

  • 14. 
    The deficit that exists when the economy operates at full employment is called the __________ deficit.
    • A. 

      Net

    • B. 

      Gross

    • C. 

      Cyclical

    • D. 

      Structural

  • 15. 
    • 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 gross public debt is greater than the net public debt.

    • D. 

      B and c

    • E. 

      A, b, and c

  • 16. 
    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
    • A. 

      Regressive income tax structure.

    • B. 

      Proportional income tax structure.

    • C. 

      Progressive income tax structure.

    • D. 

      Cyclical income tax structure.

  • 17. 
    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. 

      Progressive

    • B. 

      Cyclical

    • C. 

      Proportional.

    • D. 

      Regressive

  • 18. 
    A "flat tax" is another term for __________ tax.
    • A. 

      A progressive

    • B. 

      A proportional

    • C. 

      A regressive

    • D. 

      The inflation

  • 19. 
    The U.S. income tax is currently a __________ tax.
    • A. 

      Progressive

    • B. 

      Proportional

    • C. 

      Regressive

    • D. 

      Proactive

  • 20. 
    The top 1% of income earners in the U.S. (those with the highest taxable incomes) pay
    • A. 

      About the same percentage of their incomes in tax as the average U.S. taxpayer.

    • B. 

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

    • C. 

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

    • D. 

      About 15 percent of their incomes in income taxes

    • E. 

      A and d

  • 21. 
    What are the two types of discretionary fiscal policy?
    • A. 

      Automatic and expansionary

    • B. 

      Expansionary and contractionary

    • C. 

      Expansionary and recessionary

    • D. 

      Automatic and contractionary

  • 22. 
    If the economy is on the downward-sloping portion of the Laffer curve, a(an) __________ in tax rates will __________ tax revenues.
    • A. 

      Decrease; lower

    • B. 

      Increase; raise

    • C. 

      Decrease; raise

    • D. 

      Decrease; not change

    • E. 

      Increase; not change

  • 23. 
    If there is complete crowding out, the effective value of the multiplier is
    • A. 

      Zero

    • B. 

      One

    • C. 

      Infinite

    • D. 

      There is not enough information to answer the question.

  • 24. 
    A curve showing the relationship between tax rates and tax revenues is called a __________ curve.
    • A. 

      Phillips

    • B. 

      Keynesian

    • C. 

      Gaussian

    • D. 

      Laffer

  • 25. 
    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.
    • A. 

      Average

    • B. 

      Fixed

    • C. 

      Total

    • D. 

      Marginal