Deck 13: Fiscal Policy

Question 1

Which of the following is the largest source of federal government revenue?

A) personal income taxes
B) corporate income taxes
C) borrowing
D) Social Security taxes

Answer 1

A

Question 2

What is the largest source of revenue for the federal government?

A) sales tax
B) personal income taxes
C) corporate income taxes
D) Social Security taxes

Answer 2

B

Question 3

Fiscal policy

A) involves changing taxes and government spending.
B) involves changing the money supply.
C) involves changing interest rates.
D) is enacted by the Federal Reserve.

Answer 3

A

Question 4

Fiscal policy involves

A) decreasing the role of the Federal Reserve in the everyday life of the economy.
B) the use of tax and money policies by government to influence the level of interest rates.
C) the use of tax and spending policies by the government.
D) the use of interest rates to influence the level of GDP.

Question 5

The largest source of government revenues is .

A) personal income taxes
B) social security taxes
C) indirect taxes
D) corporate income taxes

Question 6

Which of the following government bodies does NOT participate directly in formulating U.S. fiscal policy?

A) the Federal Reserve Board
B) the House of Representatives
C) the Senate
D) the President and his cabinet

Question 7

Which branches of the government play a role in the enacting the federal budget?
I. the President.
II. the House of Representatives.
III. the Senate.

A) I and II
B) I, II and III
C) II and III
D) I

Question 8

The government receives tax revenues from several sources. Rank the following sources from largest to the smallest.
I. corporate income taxes
II. personal income taxes
III. Social Security taxes

A) I, III, II
B) III, II, I
C) II, III, I
D) I, II, III

Question 9

Fiscal policy attempts to achieve all of the following objectives EXCEPT .

A) sustained economic growth
B) a stable money supply
C) full employment
D) price level stability

Question 10

The Council of Economic Advisors advises the

A) Senate.
B) House of Representatives.
C) President.
D) Congress.

Question 11

Prior to the Great Depression, the purpose of the federal budget was to .

A) finance the activities of the government
B) decrease unemployment
C) maintain low interest rates
D) stabilize the economy

Question 12

The use of the U.S. federal budget to help stabilize the economy grew in reaction to the
And is known as .

A) stagflation of the 1970s; fiscal policy
B) Great Depression of the 1930s; monetary policy
C) Great Depression of the 1930s; fiscal policy
D) stagflation of the 1970s; government policy

Question 13

The budget process includes the

A) President proposing and Congress passing the budget.
B) Senate proposing and the House of Representatives passing the budget.
C) House of Representatives proposing and the Senate passing the budget.
D) President passing the budget as proposed by Congress.

Question 14

Fiscal policy includes

A) only decisions related to the value of transfer payments and tax revenue.
B) only decisions related to government expenditure on goods and services and the value of transfer payments.
C) decisions related to government expenditure on goods and services, the value of transfer payments, and tax revenue.
D) only decisions related to government expenditure on goods and services.

Question 15

The purpose of the Employment Act of 1946 was to

A) establish an unemployment compensation system.
B) establish goals for the federal government that would promote maximum employment, purchasing power, and production.
C) set up the Federal Reserve System.
D) set targets for the unemployment rate to be achieved by the president.

Question 16

The Council of Economic Advisers

A) approves fiscal policy changes.
B) helps the president and the public stay informed about the state of the economy.
C) proposes the presidentʹs budget each year.
D) helps the president make changes in monetary policy.

Question 17

Changes in which of the following is included as part of fiscal policy?

A) tax rates
B) the level of interest rates
C) monetary policy
D) the quantity of money

Question 18

The Employment Act of 1946 made it the responsibility of the federal government to

A) improve the distribution of income.
B) promote maximum employment.
C) balance its budget because that policy would create the maximum level of employment.
D) provide full employment and a stable balance of payments.

Question 19

The Employment Act of 1946 states that it is the responsibility of the federal government to

A) maintain the inflation rate at below 10 percent per year.
B) promote full employment.
C) promote economic equality.
D) All of the above answers are correct.

Question 20

All of the following are part of fiscal policy EXCEPT

A) setting tax rates.
B) controlling the money supply.
C) choosing the size of the government deficit.
D) setting government spending.

Question 21

Which of the following is NOT a revenue source for the Federal government?

A) social security taxes
B) indirect taxes
C) personal income taxes
D) interest on corporate bond holdings

Question 22

The largest source of revenue for the federal government is and the largest outlay is for
)

A) personal income taxes; Medicare
B) personal income taxes; interest on national debt
C) personal income taxes; transfer payments
D) corporate taxes; Social Security

Question 23

All of the following are government outlays EXCEPT

A) interest on the governmentʹs debt.
B) purchases of corporate bonds.
C) transfer payments.
D) expenditure on goods and services.

Question 24

The budget deficit

A) is the total outstanding borrowing by the government.
B) decreased during the Obama Administration.
C) is the difference between government outlays and tax revenues.
D) reached its peak in the year 2000.

Question 25

The largest item of government outlays is .

A) transfer payments
B) debt reduction
C) expenditures on goods and services
D) debt interest

Question 26

Social Security benefits and expenditures on Medicare and Medicaid are classified as

A) debt interest.
B) production of goods and services.
C) purchases of goods and services.
D) transfer payments.

Question 27

Federal government outlays as a percentage of GDP are approximately

A) 10 percent.
B) 25 percent.
C) 66 percent.
D) 50 percent.

Question 28

Whenever the federal government spends more than it receives in tax revenue, then by definition it

A) increases economic growth.
B) operates a balanced budget.
C) runs a budget surplus.
D) runs a budget deficit.

Question 29

By definition, a government budget deficit is the situation that occurs when the

A) government spends money on things which do not produce revenue, such as schools.
B) government miscalculated how much it will receive in taxes.
C) economy goes into a recession.
D) government outlays exceed what it receives in taxes.

Question 30

The governmentʹs budget deficit or surplus equals the

A) average outlay divided by average revenue.
B) total tax revenue minus total government outlays.
C) change in revenue minus change in outlays.
D) change in outlays divided by change in revenue.

Question 31

Expenditures such as Social Security benefits, farm subsidies and grants are considered

A) debt interest
B) transfer payments
C) expenditures on goods and services
D) debt reduction

Question 32

A government incurs a budget deficit when

A) taxes are less than government outlays.
B) taxes are greater than government outlays.
C) exports are less than imports.
D) exports are greater than imports.

Question 33

If the federal governmentʹs tax revenues are greater than its outlays, then the federal budget has a

A) transfer payment.
B) balanced budget.
C) deficit.
D) surplus.

Question 34

Which of the following is NOT a government outlay?

A) debt interest on the governmentʹs debt
B) purchases of foreign bonds
C) transfer payments
D) expenditure on goods and services

Question 35

$$\begin{array} { | l | l | } \hline \text { Component } & \begin{array} { l } \text { Dollars } \\\text { (billion) }\end{array} \\\hline \text { Personal income taxes } & 500 \\\hline \text { Social security taxes } & 400 \\\hline \text { Corporate income taxes } & 150 \\\hline \text { Indirect taxes } & 75 \\\hline \text { Transfer payments } & 1,200 \\\hline \begin{array} { l } \text { Expenditure on goods and } \\\text { services }\end{array} & 225 \\\hline \text { Debt interest } & 75 \\\hline\end{array}$$

-The table above has data for a country?s government budget. Government outlays for the economy equal__________ billion.

A) $1500
B) $1425
C) $1275
D) $1200

Question 36

$$\begin{array} { | l | l | } \hline \text { Component } & \begin{array} { l } \text { Dollars } \\\text { (billion) }\end{array} \\\hline \text { Personal income taxes } & 500 \\\hline \text { Social security taxes } & 400 \\\hline \text { Corporate income taxes } & 150 \\\hline \text { Indirect taxes } & 75 \\\hline \text { Transfer payments } & 1,200 \\\hline \begin{array} { l } \text { Expenditure on goods and } \\\text { services }\end{array} & 225 \\\hline \text { Debt interest } & 75 \\\hline\end{array}$$

-The table above has data for a country?s government budget. The country has government revenues of__________ billion.

A) $725
B) $1125
C) $1700
D) $900

Question 37

A budget surplus occurs when government

A) tax revenues exceeds outlays.
B) tax revenues equals outlays.
C) outlays exceeds tax revenues.
D) tax revenues equal social security expenditures.

Question 38

Rank the following federal government outlays from the largest to the smallest.
I. debt interest
II. transfer payments
III. expenditure on goods and services

A) III, II, I
B) II, III, I
C) I, II, III
D) III, I, II

Question 39

$$\begin{array} { | l | l | } \hline \text { Component } & \begin{array} { l } \text { Dollars } \\\text { (billion) }\end{array} \\\hline \text { Personal income taxes } & 500 \\\hline \text { Social security taxes } & 400 \\\hline \text { Corporate income taxes } & 150 \\\hline \text { Indirect taxes } & 75 \\\hline \text { Transfer payments } & 1,200 \\\hline \begin{array} { l } \text { Expenditure on goods and } \\\text { services }\end{array} & 225 \\\hline \text { Debt interest } & 75 \\\hline\end{array}$$

-The table above has data for a country?s government budget. The data show the government is running a__________ billion.

A) budget surplus of $650
B) budget deficit of $375
C) budget deficit of $550
D) budget surplus of $300

Question 40

If taxes exactly equaled government outlays the

A) budget deficit would not change.
B) budget deficit would be zero.
C) federal government debt would decrease.
D) federal government debt would be zero.

Question 41

If the government runs a deficit, the total amount of government debt is

A) decreasing.
B) constant.
C) zero.
D) increasing.

Question 42

$$\begin{array} { | l | l | l | } \hline \text { Year } & \begin{array} { l } \text { Government } \\\text { tax revenues } \\\text { (billions of } \\\text { dollars) }\end{array} & \begin{array} { l } \text { Government } \\\text { expenditures } \\\text { (billions of } \\\text { dollars) }\end{array} \\\hline 1 & 240 & 240 \\\hline 2 & 250 & 245 \\\hline 3 & 260 & 255 \\\hline 4 & 300 & 320 \\\hline 5 & 325 & 340 \\\hline\end{array}$$

-What is the amount of the surplus or deficit incurred in year 4 by the government shown in the above table?

A) $320 billion surplus
B) $5 billion surplus
C) $35 billion surplus
D) $20 billion deficit

Question 43

If the government has a balanced budget, the total amount of government debt is

A) decreasing.
B) increasing.
C) constant.
D) zero.

Question 44

The U.S. governmentʹs budget

A) has mostly been in surplus during the past 30 years.
B) has always been in deficit during the past 30 years.
C) has mostly been in deficit during the past 30 years.
D) must be balanced each year.

Question 45

A country has been in existence for only two years. In the first year, tax revenues were $1.0 million and outlays were $1.5 million. In the second year, tax revenues were $1.5 million and outlays were
$2)0 million. At the end of the second year, the total government debt was .

A) $3.5 million
B) $0.5 million
C) $2.5 million
D) $1 million

Question 46

Suppose a country has been running a persistent government budget deficit. If the deficit is reduced, but remains positive,

A) the country will experience a budget surplus.
B) government debt will decrease.
C) government debt will increase.
D) interest payments on the debt immediately will decrease.

Question 47

If tax revenue equal $1.5 billion and government outlays equal $1.6 billion, then the

A) government debt is equal to $0.1 billion.
B) government budget has a surplus of $0.1 billion.
C) government budget has a deficit of $0.1 billion.
D) government debt declines by $0.1 billion.

Question 48

In 2011, the U.S. government budget had a deficit. By definition, then,

A) the government debt became negative.
B) tax revenues were greater than government outlays.
C) tax revenues were less than government outlays.
D) tax revenues were equal to government outlays.

Question 49

$$\begin{array} { | l | l | l | } \hline \text { Year } & \begin{array} { l } \text { Government } \\\text { tax revenues } \\\text { (billions of } \\\text { dollars) }\end{array} & \begin{array} { l } \text { Government } \\\text { expenditures } \\\text { (billions of } \\\text { dollars) }\end{array} \\\hline 1 & 240 & 240 \\\hline 2 & 250 & 245 \\\hline 3 & 260 & 255 \\\hline 4 & 300 & 320 \\\hline 5 & 325 & 340 \\\hline\end{array}$$

-What is the amount of the surplus or deficit incurred in year 2 by the government shown in the above table?

A) $5 billion deficit
B) $250 billion surplus
C) $5 billion surplus
D) $0

Question 50

$$\begin{array} { | l | l | l | } \hline \text { Year } & \begin{array} { l } \text { Government } \\\text { tax revenues } \\\text { (billions of } \\\text { dollars) }\end{array} & \begin{array} { l } \text { Government } \\\text { expenditures } \\\text { (billions of } \\\text { dollars) }\end{array} \\\hline 1 & 240 & 240 \\\hline 2 & 250 & 245 \\\hline 3 & 260 & 255 \\\hline 4 & 300 & 320 \\\hline 5 & 325 & 340 \\\hline\end{array}$$

-What is the amount of the surplus or deficit incurred in year 1 by the government shown in the above table?

A) $240 billion surplus
B) $25 billion surplus
C) $0
D) $25 billion deficit

Question 51

Suppose the only revenue taken in by the government is in the form of income tax, and the tax rate is 10 percent. If aggregate income is $800 billion, and government outlays are $100 billion then the government budget has

A) neither a surplus nor a deficit.
B) a deficit of $80 billion.
C) a deficit of $20 billion.
D) a surplus of $20 billion.

Question 52

If the government runs a surplus, the total amount of government debt is

A) decreasing.
B) constant.
C) increasing.
D) zero.

Question 53

An increase in the government __________reduces the governmentʹs __________.

A) debt; budget deficit
B) budget surplus; debt
C) budget deficit; debt
D) None of the above answers is correct.

Question 54

$$\begin{array} { | l | l | l | } \hline \text { Year } & \begin{array} { l } \text { Government } \\\text { tax revenues } \\\text { (billions of } \\\text { dollars) }\end{array} & \begin{array} { l } \text { Government } \\\text { expenditures } \\\text { (billions of } \\\text { dollars) }\end{array} \\\hline 1 & 240 & 240 \\\hline 2 & 250 & 245 \\\hline 3 & 260 & 255 \\\hline 4 & 300 & 320 \\\hline 5 & 325 & 340 \\\hline\end{array}$$

-What is the amount of the surplus or deficit incurred in year 5 by the government shown in the above table?

A) $5 billion surplus
B) $325 billion surplus
C) $15 billion deficit
D) $35 billion surplus

Question 55

In 2011, the federal government of Happy Isle had tax revenues of $1 million, and spent $500,000 on transfer payments, $250,000 on goods and services and $300,000 on debt interest. In 2011, the government of Happy Isle had a .

A) budget deficit of $1,050,000
B) budget deficit of $50,000
C) budget surplus of $50,000
D) balanced budget

Question 56

The federal government debt is equal to the

A) sum of all annual federal government outlays.
B) obligations of benefits from federal taxes and expenditures.
C) annual difference between federal government tax revenues and outlays.
D) sum of past budget deficits minus the sum of past budget surpluses.

Question 57

When tax revenues exceed outlays, the government has a , and when outlays exceed tax revenues, the government has a .

A) budget surplus; budget deficit
B) budget deficit; budget surplus
C) budget debt; budget surplus
D) budget surplus; budget debt

Question 58

$$\begin{array} { | l | l | l | } \hline \text { Year } & \begin{array} { l } \text { Government } \\\text { tax revenues } \\\text { (billions of } \\\text { dollars) }\end{array} & \begin{array} { l } \text { Government } \\\text { expenditures } \\\text { (billions of } \\\text { dollars) }\end{array} \\\hline 1 & 240 & 240 \\\hline 2 & 250 & 245 \\\hline 3 & 260 & 255 \\\hline 4 & 300 & 320 \\\hline 5 & 325 & 340 \\\hline\end{array}$$

-What is the amount of the surplus or deficit incurred in year 3 by the government shown in the above table?

A) $5 billion deficit
B) $260 billion surplus
C) $0
D) $5 billion surplus

Question 59

A government that currently has a budget deficit can balance its budget by .

A) increasing tax revenues by more than it increases outlays
B) decreasing tax revenues by more than it decreases outlays
C) increasing both tax revenues and outlays by the same amount
D) decreasing tax revenues by more than it increases outlays

Question 60

The sum of past budget deficits minus the sum of past budget surpluses refers to

A) the cyclically unbalanced budget.
B) the national debt.
C) the structural national debt.
D) the federal government net worth.

Question 61

Comparing the U.S. budget position for 2010 to the rest of the world, we see that as a percentage of GDP, the than in most other countries.

A) U.S. budget surplus is larger
B) U.S. budget surplus is smaller
C) U.S. budget deficit is larger
D) U.S. budget deficit is smaller

Question 62

The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 3?

A) $20 billion
B) $15 billion
C) $5 billion
D) $260 billion

Question 63

Taking account of the supply-side effects, a tax cut on labor income employment and
Potential GDP.

A) increases; increases
B) decreases; decreases
C) decreases; increases
D) increases; decreases

Question 64

Looking at the supply-side effects on aggregate supply shows that a tax hike on labor income

A) decreases potential GDP.
B) weakens the incentive to work.
C) increases potential GDP because people work more to pay the higher taxes.
D) Both answers A and B are correct.

Question 65

If we compare the United States to France, the U.S. tax wedge is the French tax wedge.

A) equals to
B) smaller than
C) not comparable to
D) larger than

Question 66

The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 2?

A) $20 billion
B) $250 billion
C) $245 billion
D) $5 billion

Question 67

An income tax potential GDP by shifting the curve .

A) increases; labor demand; rightward
B) decreases; labor demand; leftward
C) decreases; labor supply; leftward
D) increases; labor supply; rightward

Question 68

An increase in taxes on labor income the labor supply curve and the labor demand curve..

A) does not shift; does not shift
B) shifts; does not shift
C) shifts; shifts
D) does not shift; shifts

Question 69

Once supply side effects are taken into account, tax cuts for labor income can change
I. the supply of labor
II. potential GDP.

A) I and II
B) I only
C) II only
D) Neither I nor II.

Question 70

If we compare the United States to France, we see that potential GDP per person in France is
Than that in the United States because the French tax wedge is than the U.S. tax wedge.

A) greater; smaller
B) less; smaller
C) greater; larger
D) less; larger

Question 71

An increase in taxes on interest income supply of loanable funds curve and the demand for loanable funds curve.

A) does not shift; shifts
B) does not shift; does not shift
C) shifts; does not shift
D) shifts; shifts

Question 72

The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 1?

A) $240 billion
B) $25 billion
C) $0
D) Not enough information is provided to answer the question.

Question 73

If the governmentʹs outlays are $1.5 trillion and its tax revenues are $2.2 trillion, the government is running a budget

A) surplus of $0.7 trillion.
B) deficit of $0.7 trillion.
C) deficit of $3.7 trillion.
D) surplus of $3.7 trillion.

Question 74

The supply side effects of a change in taxes on labor income means that in taxes on labor income shift the .

A) an increase; labor supply curve leftward
B) a decrease; labor demand curve leftward
C) an increase; labor supply curve rightward
D) a decrease; labor demand curve rightward

Question 75

An increase in taxes on labor income shifts the labor supply curve and the .

A) leftward; after-tax wage rate rises
B) rightward; before-tax wage rate rises
C) leftward; after-tax wage rate falls
D) rightward; before-tax wage rate falls

Question 76

The U.S. federal budget over the past 30 years has been

A) in deficit most of the years.
B) in surplus most of the years.
C) in surplus about half the time and deficit the other half.
D) in balance most years.

Question 77

If a tax cut increases peopleʹs labor supply, then

A) tax cuts cannot affect aggregate demand.
B) tax cuts increase potential GDP.
C) tax cuts decrease aggregate demand.
D) Both answers A and B are correct.

Question 78

The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 5?

A) $50 billion
B) -$20 billion The government has net saving rather than debt.)
C) $35 billion
D) $325 billion

Question 79

The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 4?

A) $5 billion
B) $35 billion
C) $320 billion
D) -$20 billion The government has net saving rather than debt.)

Question 80

The difference between the before-tax and after-tax rates is referred to as the

A) tax wedge.
B) taxation penalty.
C) deadweight gain.
D) tax plug.