Question 1

The return to government deficit after 2001 was due to:

Accepted Answer

A

Question 2

Savings in the United States is "too low" if

Accepted Answer

If the rate of return on investment exceeds the rate of time preference, it indicates that individuals are not saving enough to take advantage of profitable investment opportunities, suggesting that savings is "too low."

Question 3

A cut in income taxes tends to

Accepted Answer

C

Question 4

The tax cuts in 1981 and 1982 did not lead to growth in GDP as did the tax cuts in 1964. One reason for this difference was that

Accepted Answer

The difference in the effect of the tax cuts in 1981-82 and 1964 was due to the monetary policy that accompanied them. The 1964 tax cuts were accompanied by an expansionary monetary policy which helped to stimulate growth, while the 1981-82 tax cuts were accompanied by a restrictive monetary policy that countered the positive effects of the tax cuts.

Question 5

Supply siders argue that policies pursued by the Reagan administration after 1981 undermined the effect of the 1981 tax cuts. Which of the following policies has been cited by supply siders?

Accepted Answer

Supply siders argue that some of the incentives to business investment that were put in place after the 1981 tax cuts, such as the Accelerated Cost Recovery System (ACRS), were later reversed, limiting the potential effects of the tax cuts. The other options (B, C, and D) are not policies that would be supported by supply siders and are therefore not cited by them as undermining the tax cuts.

Question 6

Private savings and thus investment could be increased by which of the following government policies, ceteris paribus?

Accepted Answer

All of the options listed above would incentivize private savings and increase investment. Eliminating the corporate income tax would encourage businesses to reinvest profits and allocate more funds towards investments. Allowing corporations to use "replacement cost accounting" allows for more accurate valuations of assets and ensures that depreciation costs are not overinflated, thereby freeing up capital for investment. Exempting interest earnings from income taxation rewards individuals and businesses for saving money and encourages them to invest those funds. Therefore, D is the best choice.

Question 7

If monetary policy is used to control real GDP then fiscal policy is a major determinant of

Accepted Answer

The answer of If monetary policy is used to control...

Question 8

Which of the following policies would NOT affect the natural unemployment rate?

Accepted Answer

Reduction in sales taxes would likely have a short-term impact on the level of employment but would not affect the natural unemployment rate, which is the level of unemployment that exists when the economy is at its potential output and all labor market adjustments have occurred. The natural unemployment rate is determined by structural and institutional factors such as technological change, demographics, and labor market policies. Choices A, B, and C have the potential to affect the natural unemployment rate by changing labor market institutions or creating new jobs through government intervention.

Question 9

Which of the following statements is NOT part of supply-side theory?

Accepted Answer

The answer of Which of the following statements is NOT...

Question 10

A falling natural-employment deficit indicates that

Accepted Answer

The answer of A falling natural-employment deficit indicates that
...

Question 11

A decrease in deficit spending or an increase in the government surplus will lead to

Accepted Answer

The answer of A decrease in deficit spending or an...

Question 12

Supply side economists believe that decreases in marginal tax rates will lead to revenue increases because

Accepted Answer

Supply side economists believe that decreases in marginal tax rates will increase the incentives for people to work harder and save more, leading to higher levels of production and economic growth. This, in turn, increases the tax base, resulting in higher tax revenues despite lower tax rates. This phenomenon is known as the Laffer curve, which shows that there is a point beyond which increasing tax rates will decrease revenue due to disincentives for work and investment.

Question 13

A major side-effect of a stimulative fiscal policy is that it will

Accepted Answer

A stimulative fiscal policy involves increased government spending and/or tax cuts to boost economic activity. However, this increase in government spending can lead to a decrease in private spending, as resources are diverted away from the private sector. This is known as crowding out, and it can offset some of the stimulative effect of fiscal policy. Options A, C, and D are not accurate descriptions of the side-effects of a stimulative fiscal policy.

Question 14

If a society's rate of time preference increases, as may have occurred in the United States during the 1970s, then, ceteris paribus, per capita

Accepted Answer

The answer of If a society's rate of time preference...

Question 15

Which of the following beliefs is not part of supply-side economics?

Accepted Answer

This belief is not part of supply-side economics as it pertains more to the effects of tax policy on international trade and the job market rather than the promotion of increased productivity and economic growth through incentivizing investment and production.

Question 16

A greater reduction in the government's deficit spending would stimulate investment if it were achieved by which of the following changes, ceteris paribus?

Accepted Answer

Increasing sales taxes on consumption goods can reduce consumption, leading to higher savings and more funds available for investment, thus stimulating investment.

Question 17

"Economists have generally come to agree that monetary policy is better suited than fiscal policy for controlling GDP" because

Accepted Answer

Monetary policy, managed by the Federal Reserve (the Fed), can be adjusted more rapidly than fiscal policy, which involves changes in government spending and taxation and requires approval from both Congress and the President. This agility makes monetary policy a more effective tool for managing the economy's short-term fluctuations.

Question 18

Once monetary policy is dedicated to controlling the level of nominal GDP, then fiscal policy can be used to

Accepted Answer

When monetary policy is dedicated to controlling the level of nominal GDP, fiscal policy can be used to choose the overall level of interest rates. A high budget deficit implies a high level of interest rates, as it increases aggregate demand, leading to upward pressure on interest rates. Therefore, option B is the best choice. Option A is incorrect because a high budget surplus implies a low level of interest rates. Option C and D are also incorrect because a high budget surplus or deficit does not necessarily imply a faster rate of inflation.

Question 19

If a society's rate of time preference increases, as may have occurred in the United States during the 1970s, then, ceteris paribus, per capita

Accepted Answer

A society's rate of time preference reflects how much they value present consumption over future consumption. An increase in the rate of time preference would mean that people value present consumption even more highly, which would lead to a decrease in private savings since people would be more willing to spend money now instead of saving it for the future. This would also lead to a decrease in personal consumption, as people may have to cut back on their current spending to compensate for the lack of savings.

Question 20

The government can meet its interest bill without having to levy taxes if it issues more bonds and if the

Accepted Answer

In order for the government to meet its interest bill without having to levy taxes, it can issue more bonds. However, this will only be possible if the economy's real growth rate of output equals or exceeds its real interest rate. This is because if the economy is growing at a faster rate than the interest rate, the government will be able to generate enough revenue to service its debt without having to impose taxes on its citizens. Therefore, option C is the best choice.

Quiz 12: The Government Budget, the Public Debt, and Social Security

The return to government deficit after 2001 was due to:

Savings in the United States is "too low" if

A cut in income taxes tends to

The tax cuts in 1981 and 1982 did not lead to growth in GDP as did the tax cuts in 1964. One reason for this difference was that

Supply siders argue that policies pursued by the Reagan administration after 1981 undermined the effect of the 1981 tax cuts. Which of the following policies has been cited by supply siders?

Private savings and thus investment could be increased by which of the following government policies, ceteris paribus?

If monetary policy is used to control real GDP then fiscal policy is a major determinant of

Which of the following policies would NOT affect the natural unemployment rate?

Which of the following statements is NOT part of supply-side theory?

A falling natural-employment deficit indicates that

A decrease in deficit spending or an increase in the government surplus will lead to

Supply side economists believe that decreases in marginal tax rates will lead to revenue increases because

A major side-effect of a stimulative fiscal policy is that it will

If a society's rate of time preference increases, as may have occurred in the United States during the 1970s, then, ceteris paribus, per capita

Which of the following beliefs is not part of supply-side economics?

A greater reduction in the government's deficit spending would stimulate investment if it were achieved by which of the following changes, ceteris paribus?

"Economists have generally come to agree that monetary policy is better suited than fiscal policy for controlling GDP" because

Once monetary policy is dedicated to controlling the level of nominal GDP, then fiscal policy can be used to

If a society's rate of time preference increases, as may have occurred in the United States during the 1970s, then, ceteris paribus, per capita

The government can meet its interest bill without having to levy taxes if it issues more bonds and if the