Question 1

A permanent marginal tax decrease is likely to

Accepted Answer

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. 
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.

Question 2

To finance a budget deficit the federal government borrows funds.

Accepted Answer

A) True 
 B)False

Question 3

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.

Accepted Answer

A)  data 
B)  wait-and-see 
C)  legislative 
D)  transmission 
A)  data 
B)  wait-and-see 
C)  legislative 
D)  transmission

Question 4

-Refer to Exhibit 11-1.The economy is currently at point 1.Suppose the federal government increases purchases and there is complete crowding out.As a result,the aggregate demand (AD)curve in the exhibit

Accepted Answer

A)  will maintain its present position at AD1. 
B)  will shift rightward,ideally so that it goes through point 2. 
C)  will shift rightward,ideally so that it goes beyond point 2. 
D)  will shift leftward. 
E)  ​does not shift,but the SRAS curve will shift rightward so that it goes through point 3. 
A)  will maintain its present position at AD1. 
B)  will shift rightward,ideally so that it goes through point 2. 
C)  will shift rightward,ideally so that it goes beyond point 2. 
D)  will shift leftward. 
E)  ​does not shift,but the SRAS curve will shift rightward so that it goes through point 3.

Question 5

Taxable income rises by $2,500 and taxes rise by $825.What is the marginal tax rate?

Accepted Answer

A)  4 percent 
B)  29 percent 
C)  10 percent 
D)  33 percent 
E)  25 percent 
A)  4 percent 
B)  29 percent 
C)  10 percent 
D)  33 percent 
E)  25 percent

Question 6

A federal budget surplus occurs when government expenditures exceed tax revenues.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  average 
B)  fixed 
C)  total 
D)  marginal 
A)  average 
B)  fixed 
C)  total 
D)  marginal

Question 8

A structural deficit is the part of the budget deficit that is a result of a downturn in economic activity.

Accepted Answer

A) True 
 B)False

Question 9

With a progressive income tax,as taxable income rises (up to a certain point),one's tax rate rises.

Accepted Answer

A) True 
 B)False

Question 10

Some economists argue that a rise in the interest rate,brought about by a rise in government borrowing in the loanable funds market to finance a budget deficit,brings in foreign funds in search of the higher interest rate return.This,in turn,dampens the rise in the interest rate.If this is true as far as it goes,there will be __________ crowding out than there would be if foreign funds did not flow into the country.

Accepted Answer

A)  more 
B)  less 
C)  the same amount of 
D)  none of the above 
A)  more 
B)  less 
C)  the same amount of 
D)  none of the above

Question 11

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 c 
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 c

Question 12

Crowding out suggests that

Accepted Answer

A)  high taxes reduce both consumption and saving. 
B)  increases in consumption are always at the expense of saving. 
C)  increases in government spending may raise the interest rate,thereby reducing investment. 
D)  increases in government spending will close a recessionary gap. 
A)  high taxes reduce both consumption and saving. 
B)  increases in consumption are always at the expense of saving. 
C)  increases in government spending may raise the interest rate,thereby reducing investment. 
D)  increases in government spending will close a recessionary gap.

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

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

Accepted Answer

A)  regressive income tax structure. 
B)  proportional income tax structure. 
C)  progressive income tax structure. 
D)  cyclical income tax structure. 
A)  regressive income tax structure. 
B)  proportional income tax structure. 
C)  progressive income tax structure. 
D)  cyclical income tax structure.

Question 15

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 16

Based upon information provided in the textbook,in 2014 the top 50 percent of income earners in the U.S.paid about __________ percent of the total federal income taxes.

Accepted Answer

A)  57.25 
B)  67.25 
C)  77.25 
D)  87.25 
E)  97.25 
A)  57.25 
B)  67.25 
C)  77.25 
D)  87.25 
E)  97.25

Question 17

A value-added tax (VAT)is a less visible form of a sales tax.

Accepted Answer

A) True 
 B)False

Question 18

-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 _______________.

Accepted Answer

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

Question 19

As a result of an increase in government spending,some of the crowding out of private expenditures may come in the form of

Accepted Answer

A)  an increase in consumption. 
B)  an increase in net exports. 
C)  a decrease in taxes. 
D)  a decrease in net exports. 
A)  an increase in consumption. 
B)  an increase in net exports. 
C)  a decrease in taxes. 
D)  a decrease in net exports.

Question 20

The answer is: "Policymakers are not aware of changes in the economy as soon as they happen." What is the question?

Accepted Answer

A)  What is the wait-and-see lag? 
B)  What is the data lag? 
C)  What is the effectiveness lag? 
D)  What is the transmission lag? 
E)  none of the above 
A)  What is the wait-and-see lag? 
B)  What is the data lag? 
C)  What is the effectiveness lag? 
D)  What is the transmission lag? 
E)  none of the above

Exam 11: Monopolistic Competition, oligopoly, and Game Theory

A permanent marginal tax decrease is likely to

To finance a budget deficit the federal government borrows funds.

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.

-Refer to Exhibit 11-1.The economy is currently at point 1.Suppose the federal government increases purchases and there is complete crowding out.As a result,the aggregate demand (AD)curve in the exhibit

Taxable income rises by $2,500 and taxes rise by $825.What is the marginal tax rate?

A federal budget surplus occurs when government expenditures exceed tax revenues.

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

A structural deficit is the part of the budget deficit that is a result of a downturn in economic activity.

With a progressive income tax,as taxable income rises (up to a certain point),one's tax rate rises.

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

Crowding out suggests that

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

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

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?

Based upon information provided in the textbook,in 2014 the top 50 percent of income earners in the U.S.paid about __________ percent of the total federal income taxes.

A value-added tax (VAT)is a less visible form of a sales tax.

-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 _______________.

As a result of an increase in government spending,some of the crowding out of private expenditures may come in the form of

The answer is: "Policymakers are not aware of changes in the economy as soon as they happen." What is the question?

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free,controlled,and Relative

Supply,demand,and Price: Applications

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,union,and Labor

The Distribution of Income and Poverty

Interest,rent,and Profit

Market Failure: Externalities, public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government: Five Topics Considered

Stocks,bonds,futures,and Options

Stocks,bonds,futures,and Options

Filters

-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 _____.