Deck 13: Fiscal Policy

Question 1

Fiscal policy includes

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

Answer 1

D

Question 2

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

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

Answer 2

B

Question 3

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

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

Answer 3

A

Question 4

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

Question 5

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

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

Question 6

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

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

Question 7

The largest source of government revenues is ________.

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

Question 8

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

Question 9

All of the following are part of fiscal policy EXCEPT

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

Question 10

The Council of Economic Advisors advises the

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

Question 11

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

Question 12

The Council of Economic Advisers

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

Question 13

Fiscal policy involves

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

Question 14

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

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

Question 15

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

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

Question 16

The purpose of the Employment Act of 1946 was to

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

Question 17

The budget process includes the

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

Question 18

Fiscal policy

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

Question 19

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

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

Question 20

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

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

Question 21

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

Question 22

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

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

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

Question 23

A budget surplus occurs when government

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

Question 24

In January 2013 certain tax rates increased,which were predicted to increase the federal government's tax revenue.An increase in tax revenue ________ the government's budget deficit and over time thereby ________ the amount of government debt.

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

Question 25

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

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

Question 26

All of the following are government outlays EXCEPT

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

Question 27

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

-The table above has data for a country's government budget.The country has government revenues of ________ billion.

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

Question 28

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

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

Question 29

The budget deficit

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

Question 30

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

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

Question 31

The largest item of government outlays is ________.

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

Question 33

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

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

Question 34

The government's budget deficit or surplus equals the

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

Question 35

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

-The table above has data for a country's government budget.Government outlays for the economy equal ________ billion.

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

Question 36

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

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

Question 37

If taxes exactly equaled government outlays the

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

Question 38

Which of the following is NOT a government outlay?

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

Question 39

If the federal government's tax revenues are greater than its outlays,then the federal budget has a

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

Question 40

Federal government outlays as a percentage of GDP are approximately

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

Question 41

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

Question 42

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

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

Question 43

In 2013,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) balanced budget
B) budget deficit of $50,000
C) budget surplus of $50,000
D) budget deficit of $1,050,000

Question 44

In 2013,the U.S.government budget had a deficit.By definition,then,

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

Question 45

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

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

Question 46

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

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

Question 47

An increase in the government ________ reduces the government's ________.

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

Question 48

The federal government debt is equal to the

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

Question 49

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

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

Question 50

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

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

Question 51

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

Question 52

The gross public debt was approximately $6 trillion in 2002 and approximately $16 trillion in 2012.These numbers definitely indicate that in the 10 years between 2002 and 2012,

A) the government had budget deficits that totaled about $10 trillion.
B) the government had budget deficits of about $10 trillion per year.
C) government outlays increased by about $1 trillion per year.
D) government receipts decreased by about $1 trillion per year.

Question 53

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

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

Question 54

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

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

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

Question 55

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

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

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

Question 56

The U.S.government's budget

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

Question 57

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

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

Question 58

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

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

Question 59

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

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

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

Question 60

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

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

Question 61

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

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

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

Question 63

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

Question 64

An income tax ________ potential GDP by shifting the ________ curve ________.

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

Question 65

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

Question 66

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

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

Question 67

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

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

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

Question 68

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

Question 69

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

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

Question 70

Comparing the U.S.budget position for 2012 to the rest of the world,we see that as a percentage of GDP,the ________ than in most other countries.

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

Question 71

On January 1,2013 the income tax rate for single taxpayers making more than $400,000 per year increased from 35 percent to 39.6 percent.This tax increase ________ potential GDP.

A) increases
B) does not change
C) decreases
D) None of the above answers are correct because the tax increase might increase, decrease, or not change potential GDP.

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 4?

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

Question 73

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

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

Question 74

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

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

Question 75

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

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

Question 76

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

Question 77

If a tax cut increases people's labor supply,then

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

Question 78

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

Question 79

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

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

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

Question 80

If the government's 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) surplus of $3.7 trillion.
C) deficit of $0.7 trillion.
D) deficit of $3.7 trillion.