ECO201 Chapter 11 Exam Solution
Increased government spending and tax cuts characterize
Selected Answer: b.
expansionary fiscal
... [Show More] policy.
Answers: a.
contractionary fiscal policy.
b.
expansionary fiscal policy.
c.
expansionary monetary policy.
d.
deflationary policy.
e.
none of the above
• Question 2
0 out of 1 points
Exhibit 11-2
Refer to Exhibit 11-2. Compare points A and B. Which of the following is true?
Selected Answer: a.
At A and B, the tax rates are the same, but tax revenues are different.
Answers: a.
At A and B, the tax rates are the same, but tax revenues are different.
b.
At A tax rates are higher than at B, but tax revenues are the same at both points.
c.
At B tax rates are higher than at A, but tax revenues are the same at both points.
d.
none of the above
• Question 3
1 out of 1 points
Taxable income rises by $1,500 and taxes rise by $435. What is the marginal tax rate?
Selected Answer: c.
29 percent
Answers: a.
4 percent
b.
10 percent
c.
29 percent
d.
30 percent
e.
25 percent
• Question 4
1 out of 1 points
Exhibit 11-5
Producer Price Paid For Intermediate Goods
Price Sells For
Farmer $0 $0.60
Miller $0.60 $1.40
Baker $1.40 $2.50
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 government will receive ___________ in VAT revenue per loaf of bread sold and the final consumer will find that he has to pay _______________ more for a loaf of bread than he did prior to the VAT tax.
Selected Answer: d.
$0.25; $0.25
Answers: a.
$0.11; $2.75
b.
$0.25; $2.53
c.
$0.03; $2.75
d.
$0.25; $0.25
• Question 5
1 out of 1 points
When a decrease in one or more components of private spending completely offsets an increase in government spending, there is
Selected Answer: c.
complete crowding out.
Answers: a.
incomplete crowding out.
b.
zero crowding out.
c.
complete crowding out.
d.
complete crowding in.
e.
either c or d
• Question 6
1 out of 1 points
A curve showing the relationship between tax rates and tax revenues is called a __________ curve.
Selected Answer: d.
Laffer
Answers: a.
Gaussian
b.
Keynesian
c.
Phillips
d.
Laffer
• Question 7
1 out of 1 points
The lag between an increase in government spending and the impact of this increased spending on the economy is called the __________ lag.
Selected Answer: c.
effectiveness
Answers: a.
data
b.
legislative
c.
effectiveness
d.
transmission
• Question 8
1 out of 1 points
Which of the following statements is true?
Selected Answer: e.
a, b, and c
Answers: 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
• Question 9
1 out of 1 points
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.
Selected Answer: e.
b or c
Answers: a.
increase in government spending
b.
decrease in government spending
c.
increase in taxes
d.
decrease in taxes
e.
b or c
• Question 10
1 out of 1 points
The unique feature of a progressive income tax is that the higher one's income (up to some point), the __________ one pays.
Selected Answer: b.
higher the tax rate
Answers: a.
more taxes
b.
higher the tax rate
c.
less taxes
d.
lower the tax rate
e.
none of the above
• Question 11
1 out of 1 points
A permanent marginal tax rate cut would be expected to shift both the short-run and the long-run aggregate supply curves to the right.
Selected Answer: True
Answers: True
False
• Question 12
1 out of 1 points
According to the textbook, in 2011 the top 1 percent of income earners in the U.S. earned more than $388,905.
Selected Answer: True
Answers: True
False
• Question 13
1 out of 1 points
A value-added tax (VAT) is a less visible form of a sales tax.
Selected Answer: True
Answers: True
False
• Question 14
1 out of 1 points
Suppose that in a certain nation the flat income tax rate of 40 percent is reduced to 35 percent and as a result the tax base rises from $400 billion to $600 billion. As a result, ax revenues __________, indicating the nation is on the __________ portion of its Laffer curve.
Selected Answer: c.
rise; downward-sloping
Answers: a.
rise; upward-sloping
b.
fall; downward-sloping
c.
rise; downward-sloping
d.
fall; upward-sloping
• Question 15
1 out of 1 points
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?
Selected Answer: e.
none of the above
Answers: 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 above
• Question 16
1 out of 1 points
Which of the following is an example of automatic fiscal policy?
Selected Answer: e.
none of the above
Answers: a.
The government deliberately raises taxes.
b.
The government deliberately lowers taxes.
c.
The government deliberately increases spending.
d.
The government deliberately decreases spending.
e.
none of the above
• Question 17
0 out of 1 points
Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $500 million. This is an example of
Selected Answer: b.
complete crowding out.
Answers: a.
incomplete crowding out.
b.
complete crowding out.
c.
zero crowding out.
d.
a and c
e.
none of the above
• Question 18
1 out of 1 points
Some economists believe that permanently lower marginal income tax rates __________ the incentive to work and thus shift the __________.
Selected Answer: d.
increase; LRAS curve to the right
Answers: a.
decrease; LRAS curve to the right
b.
decrease; AD curve to the left
c.
increase; AD curve to the right
d.
increase; LRAS curve to the right
e.
increase; SRAS curve to the left
• Question 19
1 out of 1 points
Which of the following is not an example of a "lag" that diminishes the potential impact of fiscal policy?
Selected Answer: b.
the recessionary lag
Answers: 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.
• Question 20
1 out of 1 points
The answer is: "Policymakers are not aware of changes in the economy as soon as they happen." What is the question?
Selected Answer: b.
What is the data lag?
Answers: 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
• Question 21
1 out of 1 points
Suppose the economy is in a recessionary gap. If government expenditures are currently $1.4 trillion and tax revenues are currently $1 trillion, the (total) budget deficit is _____________. Assume that economists estimate that if the economy were operating at full employment, government expenditures would be $1.2 trillion and tax revenues would be $1.1 trillion. The structural deficit is _________________ and the cyclical deficit is _______________.
Selected Answer: d.
$400 billion; $100 billion; $300 billion
Answers: a.
$300 billion; $100 billion; $400 billion
b.
$400 billion; $300 billion; $100 billion
c.
$2.4 trillion; $2.2 trillion; $200 billion
d.
$400 billion; $100 billion; $300 billion
• Question 22
1 out of 1 points
If there is complete crowding out as a result of an increase in government spending there will be
Selected Answer: a.
no change in aggregate demand.
Answers: a.
no change in aggregate demand.
b.
a downward movement along the aggregate demand curve.
c.
an increase in aggregate demand.
d.
a decrease in aggregate demand.
• Question 23
1 out of 1 points
To finance a budget deficit the federal government borrows funds.
Selected Answer: True
Answers: True
False
• Question 24
1 out of 1 points
The AD curve shifts to the right with an increase in taxes or a decrease in government purchases.
Selected Answer: False
Answers: True
False
• Question 25
0 out of 1 points
The Laffer curve illustrates that
Selected Answer: c.
an increase in tax rates can cause an increase in tax revenues.
Answers: a.
there are two tax rates at which zero tax revenues are raised.
b.
a decrease in tax rates can cause an increase in tax revenues.
c.
an increase in tax rates can cause an increase in tax revenues.
d.
an increase in tax rates can cause a decrease in tax revenues.
e.
all of the above [Show Less]