Question 1

Fiscal policy includes:&#10;A) Taxation changes&#10;B) Changes to the rules governing the banking system&#10;C) Changes in lending by banks&#10;D) Changes in the exchange rate

Accepted Answer

Fiscal policy involves government spending and taxation decisions, which are used to influence the economy. Changes to the rules governing the banking system, changes in lending by banks, and changes in the exchange rate are more related to monetary policy and financial regulation, not fiscal policy.

Question 2

Direct taxes include:&#10;A) Customs duties&#10;B) Excise duties&#10;C) VAT&#10;D) Income tax

Accepted Answer

Direct taxes are those paid directly to the government by the individual or organization on whom it is imposed. Income tax is a direct tax, as it is paid directly by the individual or entity earning the income to the government. Customs duties, excise duties, and VAT are indirect taxes, as they are levied on goods and services and are paid by the consumer indirectly through the purchase price.

Question 3

In a boom the government budget:&#10;A) Should improve because of less revenue&#10;B) Should automatically improve because of more revenue and less spending on benefits.&#10;C) Should automatically worsen due to more spending on benefits.&#10;D) Should automatically worsen due to higher incomes.

Accepted Answer

During a boom, the economy is growing, and employment levels are high, which leads to more tax revenue from higher incomes and corporate profits. Additionally, less spending is needed on benefits such as unemployment because more people are working. This combination of factors means the government budget should automatically improve.

Question 4

The average rate of tax is calculated by:&#10;A) The change in tax paid / change in income&#10;B) Change in tax paid / total income&#10;C) Total tax paid / change in income&#10;D) Total tax paid / total income

Accepted Answer

The average rate of tax is calculated by dividing the total tax paid by the total income. This gives an overall percentage of income that is paid in tax.

Question 5

In a progressive taxation system:&#10;A) The average tax paid is constant.&#10;B) The average rate of taxation increases as income increases.&#10;C) The marginal rate of taxation is constant.&#10;D) The average tax paid falls as income increases.

Accepted Answer

In a progressive taxation system, the average rate of taxation increases as the taxpayer's income increases. This means that individuals with higher incomes pay a higher percentage of their income in taxes compared to those with lower incomes.

Question 6

The total amount owed by the government is called:&#10;A) The National Debt&#10;B) The PSNCR&#10;C) The government budget&#10;D) The equity system

Accepted Answer

The total amount owed by the government is referred to as the National Debt. This encompasses all of the government's outstanding debts and is a measure of the government's financial obligations.

Question 7

In a recession:&#10;A) The budget position will not change.&#10;B) The budget position will automatically improve.&#10;C) The budget position will automatically worsen.&#10;D) Government spending will automatically equal revenue.

Accepted Answer

In a recession, the budget position will automatically worsen due to decreased tax revenues and increased government spending on unemployment benefits and other automatic stabilizers.

Question 8

Fiscal drag occurs when the tax brackets do not increase in line with interest rates.

Accepted Answer

Fiscal drag occurs when tax brackets do not adjust in line with inflation, leading to an increase in tax burden as people's incomes rise into higher tax brackets without a real increase in purchasing power.

Question 9

Supply-side policies are aimed at increasing total spending in the economy.

Accepted Answer

Supply-side policies are aimed at increasing the productive capacity of the economy, not directly increasing total spending.

Question 10

The relationship between tax rates and the total tax revenue for the government is shown by the _________ curve.

Accepted Answer

The answer of The relationship between tax rates and the...

Question 11

The government purchases which of the following goods and services?&#10;A) Defence&#10;B) Education&#10;C) Healthcare&#10;D) All of the above

Accepted Answer

The answer of The government purchases which of the following...

Question 12

The government can finance additional expenditure activities by:&#10;A) Increasing interest rates&#10;B) Increasing borrowing&#10;C) Cutting rates of taxation&#10;D) None of the above

Accepted Answer

The answer of The government can finance additional expenditure activities...

Question 13

Government bonds may also be referred to as:&#10;A) Scripts&#10;B) Certificates&#10;C) Securities&#10;D) Orders

Accepted Answer

The answer of Government bonds may also be referred to...

Question 14

Fiscal policy can be used to influence both aggregate demand and aggregate supply.

Accepted Answer

The answer of Fiscal policy can be used to influence...

Deck 23: Influences on Aggregate Demand: Government Revenues and Taxation