Question 1

During a recession, tax revenues ________ while government transfer payments ________, thereby mitigating part of the adverse effects of a recession and stabilizing the economy.

Accepted Answer

During a recession, tax revenues tend to fall as individuals and businesses earn less income and pay less in taxes. However, government transfer payments, such as unemployment benefits, tend to increase as more people lose their jobs and rely on government assistance. Therefore, choice A is the correct answer. The increase in government transfer payments helps to offset some of the negative impacts of the recession by providing a safety net for those who have been negatively affected.

Question 2

Recall the Application about the relationship between tax rates and tax revenues which was proposed by Yu Juo, one of the twelve wise men who succeeded Confucius in ancient China, to answer the following question(s).
-According to this Application, Yu Juo proposed that the Chinese government should ________ the tax rate in the case of a famine if the government had insufficient funds, and this would ________ the standard of living.

Accepted Answer

Yu Juo proposed cutting the tax rate to increase the standard of living by making it easier for people to afford necessities during a famine, which would also encourage economic activity and potentially increase tax revenues through higher volume of transactions.

Question 3

A federal budget ________ occurs when the federal government spends more than it collects in taxes.

Accepted Answer

A federal budget deficit occurs when the government spends more money than it receives in revenue from taxes, fees, and other sources. This results in an increase in the national debt as the government borrows money to cover its spending. A surplus, on the other hand, occurs when the government collects more revenue than it spends, which can be used to pay down existing debt. Equilibrium refers to a state of balance where revenues and expenditures are equal, and a ceiling typically refers to a limit or cap on spending.

Question 4

Automatic stabilizers

Accepted Answer

Automatic stabilizers are programs or policies that automatically adjust to stimulate economic growth during recessions and restrain growth during expansions. They help to minimize fluctuations in the economy without the need for government intervention or authorization from the President. Examples of automatic stabilizers are progressive income tax systems, unemployment insurance, and welfare programs.

Question 5

The relationship between tax rates and tax revenues is shown on the

Accepted Answer

The Laffer curve shows the relationship between tax rates and tax revenues. It suggests that there is an optimal tax rate that maximizes revenue, and that when tax rates are too high or too low, revenue decreases.

Question 6

An increased federal budget deficit resulting from a recession can actually help stabilize an economy, because corporate profits tend to fall in a recession which, in turn, results in ________ corporate taxes and ________.

Accepted Answer

During a recession, corporate profits tend to fall, leading to lower corporate taxes. This, in turn, can result in fewer spending cuts for businesses as they have less tax liability, allowing them to potentially stabilize their operations during economic downturns.

Question 7

Suppose an economy has a balanced federal budget, and a large increase in oil prices plunges the economy into a recession. Tax revenues will ________ and expenditures on transfer payments will ________, resulting in a budget ________.

Accepted Answer

In a recession, tax revenues typically fall due to lower income and corporate earnings, while expenditures on transfer payments (like unemployment benefits) increase as more people qualify for these benefits. This combination leads to a budget deficit.

Question 8

When the economy slows down and national income falls, the government will have ________ tax revenue to fund programs.

Accepted Answer

When the economy slows down and national income falls, people tend to spend less and therefore, economic activity decreases. This results in lower tax revenue since people are earning less and, as a result, paying fewer taxes. So, the government will have less tax revenue to fund programs.

Question 9

The Laffer curve illustrates that

Accepted Answer

The Laffer curve suggests that as tax rates increase, tax revenue initially increases, but at some point, the disincentive effect of higher tax rates may discourage economic activity, leading to a decrease in tax revenue. Therefore, high tax rates could lead to lower tax revenues, as explained in option A. Option B and D are incorrect, as there is no guarantee that lowering tax rates will always increase or decrease tax revenue. Option C is also incorrect, as it assumes that a higher tax rate will always lead to an increase in labor supply, which is not necessarily true.

Question 10

Recall the Application about the relationship between tax rates and tax revenues which was proposed by Yu Juo, one of the twelve wise men who succeeded Confucius in ancient China, to answer the following question(s).
-This Application addresses the idea that

Accepted Answer

Yu Juo's application proposes that cutting tax rates may actually increase tax revenues, indicating that there is a positive relationship between tax rates and tax revenues up to a certain point, after which higher tax rates may decrease tax revenues.

Question 11

Suppose an economy has a balanced federal budget, and a favorable supply shock hits the economy. Tax revenues will ________ and expenditures on transfer payments will ________, resulting in a budget ________.

Accepted Answer

A favorable supply shock would increase tax revenues as a result of higher production and consumption. Additionally, transfer payments such as unemployment benefits would decrease as fewer people would be unemployed. This would result in an increase in tax revenues and a decrease in expenditures, leading to a budget surplus. Therefore, D is the correct answer.

Question 12

Which of the following is an example of an automatic stabilizer?

Accepted Answer

Automatic stabilizers are government programs that automatically respond to economic changes to stabilize disposable income and support economic growth without requiring explicit policy action. In this case, more unemployment benefits are paid during a recession, which helps to support disposable income and stabilize the economy. Choices A, B, and D involve explicit policy actions by Congress and therefore do not fit the definition of automatic stabilizers.

Question 13

An increased federal budget deficit resulting from a recession can actually help stabilize an economy through transfer payments because an increased budget deficit will ________ transfer payments and thereby ________ the income of some households.

Accepted Answer

An increased federal budget deficit during a recession often leads to higher transfer payments, such as unemployment benefits, which directly increase the income of households receiving them. This process is part of automatic fiscal stabilizers that help to mitigate the economic downturn.

Question 14

Automatic stabilizers

Accepted Answer

Automatic stabilizers are pre-programmed features of the economy that activate in response to certain economic conditions, such as a recession. These stabilizers require no additional action or decision-making from Congress or the White House, as they are built into the system. Examples of automatic stabilizers include unemployment benefits and progressive income taxes, which increase during economic downturns and help to stabilize the economy without the need for explicit policy actions. Option A is incorrect, as automatic stabilizers do not require explicit actions from policy makers. Option C is incorrect, as automatic stabilizers aim to stabilize the economy and reduce fluctuations, rather than magnify them. Option D is incorrect, as automatic stabilizers generally involve decreasing taxes or increasing spending to stimulate the economy during a recession, rather than increasing taxes.

Question 15

Recall the Application about the relationship between tax rates and tax revenues which was proposed by Yu Juo, one of the twelve wise men who succeeded Confucius in ancient China, to answer the following question(s).
-Recall the Application. The idea regarding the relationship between tax rates and tax revenues proposed by Yu Juo is very similar to the idea proposed by economist

Accepted Answer

The idea proposed by Yu Juo about the relationship between tax rates and tax revenues is known as the "Laffer Curve," which was later popularized by economist Arthur Laffer in the 1980s. The Laffer Curve shows that as tax rates increase, tax revenues initially increase, but at a certain point, further increases in tax rates actually lead to a decrease in tax revenues. This is because high tax rates can disincentivize work and investment, leading to a decrease in economic activity and ultimately a decrease in tax revenues. Therefore, the best choice is B, Arthur Laffer.

Question 16

The government strives to operate at neither a deficit nor surplus budget in order to keep the federal budget

Accepted Answer

The government strives to operate at a balanced budget, which means that its total revenues equal its total expenditures. This helps keep the federal budget balanced and prevents excessive borrowing or deficit spending, which can lead to inflation and other economic problems. The government's budget is not necessarily tied to the stock market or the budgets of other countries.

Question 17

Suppose the government runs a budget surplus in a given year. It can reduce its overall federal debt by

Accepted Answer

If the government runs a budget surplus, it means the government is taking in more revenue than it is spending. Therefore, it can use the surplus to buy back some of the bonds it sold to the public to finance previous deficits. This will reduce the overall federal debt. Option A is not relevant to reducing the debt. Option C is possible, but the government cannot directly control net exports. Option D may increase revenue, but it may not necessarily lead to a reduction in the overall federal debt.

Question 18

A federal budget ________ occurs when the government spends less than it collects in taxes.

Accepted Answer

A federal budget surplus occurs when the government spends less than it collects in taxes. This means that the government has extra funds to use for paying off debt, investing in infrastructure or other programs, or possibly returning funds to taxpayers through rebates or tax cuts.

Question 19

Suppose initially the federal budget is balanced. The economy then enters a period of expansion. What is likely to happen to the federal budget?

Accepted Answer

During an economic expansion, tax revenues typically increase due to higher incomes and corporate profits, while government spending on social services like unemployment benefits may decrease. This can lead to a budget surplus.

Question 20

According to supply-side economics, a(n)________ in the tax rate tends to increase the labor supply and ________ aggregate output.

Accepted Answer

Supply-side economics posits that a decrease in the tax rate will incentivize individuals to work more, thereby increasing the labor supply and ultimately increasing aggregate output.

Quiz 10: Fiscal Policy

During a recession, tax revenues while government transfer payments , thereby mitigating part of the adverse effects of a recession and stabilizing the economy.

A federal budget ________ occurs when the federal government spends more than it collects in taxes.

Automatic stabilizers

The relationship between tax rates and tax revenues is shown on the

An increased federal budget deficit resulting from a recession can actually help stabilize an economy, because corporate profits tend to fall in a recession which, in turn, results in corporate taxes and .

Suppose an economy has a balanced federal budget, and a large increase in oil prices plunges the economy into a recession. Tax revenues will and expenditures on transfer payments will , resulting in a budget .

When the economy slows down and national income falls, the government will have ________ tax revenue to fund programs.

The Laffer curve illustrates that

Recall the Application about the relationship between tax rates and tax revenues which was proposed by Yu Juo, one of the twelve wise men who succeeded Confucius in ancient China, to answer the following question(s) . -This Application addresses the idea that

Suppose an economy has a balanced federal budget, and a favorable supply shock hits the economy. Tax revenues will and expenditures on transfer payments will , resulting in a budget .

Which of the following is an example of an automatic stabilizer?

An increased federal budget deficit resulting from a recession can actually help stabilize an economy through transfer payments because an increased budget deficit will transfer payments and thereby the income of some households.

Automatic stabilizers

The government strives to operate at neither a deficit nor surplus budget in order to keep the federal budget

Suppose the government runs a budget surplus in a given year. It can reduce its overall federal debt by

A federal budget ________ occurs when the government spends less than it collects in taxes.

Suppose initially the federal budget is balanced. The economy then enters a period of expansion. What is likely to happen to the federal budget?

According to supply-side economics, a(n) in the tax rate tends to increase the labor supply and aggregate output.

Quiz 10: Fiscal Policy

During a recession, tax revenues ________ while government transfer payments ________, thereby mitigating part of the adverse effects of a recession and stabilizing the economy.

A federal budget ________ occurs when the federal government spends more than it collects in taxes.

Automatic stabilizers

The relationship between tax rates and tax revenues is shown on the

An increased federal budget deficit resulting from a recession can actually help stabilize an economy, because corporate profits tend to fall in a recession which, in turn, results in ________ corporate taxes and ________.

Suppose an economy has a balanced federal budget, and a large increase in oil prices plunges the economy into a recession. Tax revenues will ________ and expenditures on transfer payments will ________, resulting in a budget ________.

When the economy slows down and national income falls, the government will have ________ tax revenue to fund programs.

The Laffer curve illustrates that

Recall the Application about the relationship between tax rates and tax revenues which was proposed by Yu Juo, one of the twelve wise men who succeeded Confucius in ancient China, to answer the following question(s) . -This Application addresses the idea that

Suppose an economy has a balanced federal budget, and a favorable supply shock hits the economy. Tax revenues will ________ and expenditures on transfer payments will ________, resulting in a budget ________.

Which of the following is an example of an automatic stabilizer?

An increased federal budget deficit resulting from a recession can actually help stabilize an economy through transfer payments because an increased budget deficit will ________ transfer payments and thereby ________ the income of some households.

Automatic stabilizers

The government strives to operate at neither a deficit nor surplus budget in order to keep the federal budget

Suppose the government runs a budget surplus in a given year. It can reduce its overall federal debt by

A federal budget ________ occurs when the government spends less than it collects in taxes.

Suppose initially the federal budget is balanced. The economy then enters a period of expansion. What is likely to happen to the federal budget?

According to supply-side economics, a(n) ________ in the tax rate tends to increase the labor supply and ________ aggregate output.

During a recession, tax revenues while government transfer payments , thereby mitigating part of the adverse effects of a recession and stabilizing the economy.

An increased federal budget deficit resulting from a recession can actually help stabilize an economy, because corporate profits tend to fall in a recession which, in turn, results in corporate taxes and .

Suppose an economy has a balanced federal budget, and a large increase in oil prices plunges the economy into a recession. Tax revenues will and expenditures on transfer payments will , resulting in a budget .

Suppose an economy has a balanced federal budget, and a favorable supply shock hits the economy. Tax revenues will and expenditures on transfer payments will , resulting in a budget .

An increased federal budget deficit resulting from a recession can actually help stabilize an economy through transfer payments because an increased budget deficit will transfer payments and thereby the income of some households.

According to supply-side economics, a(n) in the tax rate tends to increase the labor supply and aggregate output.