Deck 11: Fiscal Policy

Question 1

An increase in government spending can raise wages and prices in the short term.

Answer 1

True
Explanation: The possibility of inflation is one of the limitations of spending stimulus.

Question 2

An excise tax taxes individual income.

Answer 2

False
Explanation: An excise tax taxes products such as liquor, gasoline, and cigarettes.

Question 3

The single biggest federal tax is the

A) excise tax.
B) federal income tax.
C) estate tax.
D) corporate income tax.

Answer 3

B

Question 4

Fiscal stimulus involves raising taxes and reducing spending to stimulate the economy.

Question 5

The Keynesian recommendation for a policy response to a recession consists of

A) increased government spending with tax cuts.
B) decreased government spending with tax cuts.
C) increased government spending with tax increases.
D) decreased government spending with tax increases.

Question 6

The transfer of domestic economic stimulus to foreign markets is known as

A) economic overage.
B) net export leakage.
C) overseas leakage.
D) fiscal offset.

Question 7

The government funds its spending by taxation and borrowing.

Question 8

The marginal propensity to consume is the portion of income that a household saves after taxes.

Question 9

The multiplier effect can be expressed as both a job multiplier and a spending multiplier.

Question 10

Overseas leakage occurs when net imports exceed net exports.

Question 11

If tax cuts are stimulative,tax increases are

A) contractionary.
B) reactionary.
C) inflationary.
D) deflationary.

Question 12

The amount of income people have left after taxes is called

A) boot.
B) net profit.
C) excise income.
D) disposable income.

Question 13

During a recession,government spending to push up output and reduce unemployment is called

A) inflationary.
B) stimulative.
C) deflationary.
D) a fiscal devaluation.

Question 14

The portion that households spend of each dollar they receive is called the

A) after-tax incentive.
B) marginal propensity to consume.
C) marginal after-tax income.
D) natural tendency to consume.

Question 15

The overall boost to economic activity that results from a government spending increase is called a(n)

A) butterfly effect.
B) economic effect.
C) multiplier effect.
D) aggregate demand effect.

Question 16

In the short term,an increase in government spending may

A) reduce taxes and wages.
B) raise prices and wages.
C) raise taxes but reduce wages.
D) raise wages and reduce inflation.

Question 17

President Obama signed legislation that pumped $787 million worth of federal spending and tax cuts into the economy.

Question 18

An increase in government spending in the short term lowers unemployment and increases the GDP.

Question 19

The overall increase in GDP that results from a $1 cut in taxes is called

A) The government spending effect.
B) The tax multiplier.
C) The fiscal multiplier.
D) The base multiplier.

Question 20

The amount of government debt is called the public cost.

Question 21

An increasing budget deficit stimulates the economy

A) in the long run.
B) by decreasing spending.
C) in the short run.
D) by increasing taxes.

Question 22

In 2010,federal,state,and local governments spent an estimated

A) $5.5 trillion.
B) $3.5 billion.
C) $2.8 trillion.
D) $550 billion.

Question 23

The government's decisions about spending and taxation that affect employment,output,and inflation are called

A) fiscal policy.
B) multiplier policy.
C) short-term policy.
D) Keynesian policy.

Question 24

Government spending is funded by a system of

A) checks and balances.
B) policies and laws.
C) states and cities.
D) taxation and borrowing.

Question 25

A result of budget deficits is that governments have to borrow more,sometimes resulting in

A) increasing the rate of inflation.
B) decreasing interest rates.
C) increased foreign borrowing.
D) crowding out of the private sector from the market for loans.

Question 26

The total of all past government borrowing,minus government budget surpluses,is called the

A) national cost.
B) public debt.
C) net debt load.
D) fiscal cost.

Question 27

When the government competes with the private sector for loans,this is called

A) private competition.
B) crowding out.
C) crowding in.
D) fiscal bullying.

Question 28

The excess of the federal government's spending over its revenues is called the

A) surplus deficit.
B) budget deficit.
C) surplus effect.
D) budget surplus.

Question 29

Supply-side economics states that cutting taxes can stimulate enough work and investment to

A) actually increase tax revenues.
B) actually decrease tax revenues even further.
C) add to inflationary concerns.
D) create a supply curve equilibrium.

Question 30

In the short term,a decrease in taxes will have what effect on GDP and unemployment?

A) It will reduce unemployment and reduce GDP.
B) It will reduce unemployment and raise GDP.
C) It will raise unemployment and raise GDP.
D) It will raise unemployment and reduce GDP.

Question 31

The short-term impact of government spending on demand schedules for goods and labor is

A) a shift to the left.
B) a decrease in inflation.
C) a shift to the right.
D) an increase in inflation.

Question 32

During a recession,the budget deficit generally increases because tax revenues weaken while expenditures rise.This increase is known as the

A) automatic stabilizer.
B) net stimulus increase.
C) automatic increase.
D) fiscal stabilizer.

Question 33

In 1955,the marginal tax rate for a married couple with a taxable income over $400,000 was

A) 35%.
B) 30%.
C) 85%.
D) 91%.

Question 34

__________ originally proposed the use of government spending to stimulate the economy in the 1930s during the Great Depression.

A) John Maynard Keynes
B) Franklin Delano Roosevelt
C) Albert Einstein
D) Ronald Reagan

Question 35

When government revenues exceed spending,that is called a

A) negative surplus.
B) budget surplus.
C) budget deficit.
D) balanced budget.

Question 36

The effect of crowding out over the long run is

A) bad because businesses have less access to loans they need to buy capital.
B) good because it ensures strong businesses.
C) bad because it is deflationary in nature.
D) good because it tends to reduce taxes.

Question 37

Supply-side economics argues that changes in ________ affect incentives to work.

A) marginal tax rates
B) marginal income
C) marginal profit
D) marginal cost

Question 38

The tax you pay on your last dollar of income is called the

A) last dollar tax.
B) average tax rate.
C) marginal rate of payment.
D) marginal tax rate.

Question 39

The federal government's budget deficit __________ between 2008 and 2009.

A) decreased from $1,413 billion to $459 billion
B) remained stable at $459 billion
C) increased from $459 billion to $1,413 billion
D) increased by $1,413 billion

Question 40

In the private sector,all transactions are voluntary,so

A) there are always winners and losers.
B) often too few transactions will take place.
C) presumably all parties benefit.
D) individuals are required to participate.

Question 41

The _____ is the overall economic effect that comes from government spending increases.

A) incentive effect
B) spending effect
C) multiplier effect
D) fiscal effect

Question 42

Domestic fiscal stimulus is more likely to lead to __________ when production is outsourced.

A) decreased imports
B) increased imports
C) decreased inflation
D) increased inflation

Question 43

The time it takes to recognize a recession and implement a spending stimulus is called a

A) retroactivity.
B) fiscal drag.
C) multiplier.
D) lag.

Question 44

Some economists argue that the spending multiplier is actually less than 1.If the spending multiplier is 0.8,then a $200 billion increase in government spending will cause private sector spending to

A) rise by $160 billion.
B) rise by $40 billion.
C) fall by $40 billion.
D) fall by $160 billion.

Question 45

As overseas leakage becomes greater,the multiplier effect

A) grows.
B) shrinks.
C) becomes more moderate.
D) is replaced with the incentive effect.

Question 46

An increase in government spending is more likely to have a positive impact on jobs and output when

A) the unemployment rate is below the natural rate.
B) real GDP is above potential GDP.
C) the business cycle is near the peak.
D) the economy is in a recession.

Question 47

If the spending multiplier is 1.2,then a $100 billion increase in government spending will increase private sector spending by

A) $100 billion.
B) $120 billion.
C) $83.3 billion.
D) $20 billion.

Question 48

The wealthy have a(n)___________ marginal propensity to consume.

A) lower
B) higher
C) elastic
D) inelastic

Question 49

An increase in government spending is more likely to lead to higher inflation when

A) the unemployment rate is above the natural rate.
B) real GDP is above potential GDP.
C) the business cycle is near the trough.
D) the economy is in a recession.

Question 50

Which recent president raised taxes when the income tax share of GDP was very low?

A) Ronald Reagan.
B) Bill Clinton.
C) George W. Bush.
D) Barack Obama.

Question 51

Some economists argue that the spending multiplier is actually less than 1.If the spending multiplier is 0.8,then a $200 billion increase in government spending will increase GDP by

A) $200 billion.
B) $160 billion.
C) $40 billion.
D) $250 billion.

Question 52

Supply-side economics focuses on the

A) average tax burden.
B) federal income tax share of GDP.
C) marginal tax rate.
D) size of the tax multiplier.

Question 53

Like private borrowers,governments

A) can raise taxes to pay off their debts.
B) do not, in the long run, have to pay back their debts.
C) regulate the industries through which they borrow.
D) have to pay interest on their debts.

Question 54

When higher taxes discourage whatever activity is being taxed,that is called

A) tax discouragement.
B) tax abatement.
C) the multiplier effect.
D) the negative incentive effect.

Question 55

Tax cuts tend to boost

A) disposable income.
B) tax revenues.
C) inflation.
D) interest rates.

Question 56

An attempt to use government spending to boost the economy may bring

A) inflation.
B) deflation.
C) anarchy.
D) fiscal instability.

Question 57

The higher the marginal propensity to consume,

A) the bigger the multiplier effect will be.
B) the smaller the spending effect will be.
C) the bigger the incentive effect will be.
D) the smaller the incentive effect will be.

Question 58

If the spending multiplier is 1.2,then a $100 billion increase in government spending will increase GDP by

A) $100 billion.
B) $120 billion.
C) $83.3 billion.
D) $20 billion.

Question 59

The multiplier effect of government spending can be stated as a __________ multiplier or a __________ multiplier.

A) fiscal; money
B) spending; job
C) federal; local
D) government; private sector

Question 60

The two factors that determine the size of the multiplier are the

A) marginal propensity to consume and the amount of overseas leakage.
B) amount of imports and the amount of exports.
C) amount of spending and the number of jobs.
D) unemployment rate and the inflation rate.

Question 61

What is one of the central concepts of supply-side economics?

Question 62

What is the definition and purpose of the payroll tax?

Question 63

What is the multiplier effect?

Question 64

What is the largest tax in the United States?

Question 65

What does the government have to do when there is a budget deficit?