Question 1

Corporate taxes are:

Accepted Answer

Corporate taxes are levied on the earnings of corporations. This includes both federal and state taxes on income, as well as additional taxes on things like capital gains, property, and payroll.

Question 2

Which of the following did not cause the budget deficit to grow larger since 2001?

Accepted Answer

A fast-growing economy would typically bring in more revenue, helping to reduce the budget deficit, rather than making it larger. The other options all directly contributed to the growth of the budget deficit.

Question 3

Recall Application 3, "Evaluating the Obama Fiscal Stimulus" to answer the following questions:
-According to the application, the Council of Economic Advisers estimated that the economic stimulus package implemented by President Obama:

Accepted Answer

The Council of Economic Advisers estimated that the economic stimulus package implemented by President Obama avoided the loss of 1 million jobs.

Question 4

The permanent income view of consumption spending postulate that households base their spending on:

Accepted Answer

The permanent income view of consumption spending posits that households base their spending on their average long-run income, rather than their current income or future income. This is because households are assumed to be forward-looking and to make consumption decisions based on their long-term earning potential rather than short-term fluctuations in income. Therefore, the correct answer is C – average long-run income.

Question 5

Which of the following is not considered a fiscal policy?

Accepted Answer

The answer of Which of the following is not considered...

Question 6

Supply- side economists look at the effects of taxes on:

Accepted Answer

Supply-side economists focus on how taxes impact aggregate supply, believing that lower taxes can increase production and economic growth.

Question 7

Individual income taxes are largely collected:

Accepted Answer

Individual income taxes are primarily collected through a combination of withheld tax (from paychecks) and individual tax due filing payments (typically made annually by April 15th for the previous tax year). This system ensures that taxpayers are paying their owed taxes throughout the year rather than in one lump sum. Estimated tax payments may also be required for some taxpayers who have income that is not subject to withholding.

Question 8

Inside lags associated with fiscal policy are due to all of the following, except:

Accepted Answer

Inside lags associated with fiscal policy include the time required for government officials to recognize that a change in policy is needed, the time required to pass the necessary legislation, the time lag involved in implementing the change, and the time required for the effects of the change to be felt in the economy. The delayed response of firms to a tax cut is actually an example of an outside lag, not an inside lag. Therefore, option C is incorrect. The political infighting involved in approving changes in government spending or taxes, poor and conflicting data available to policymakers, and delays in assessing the real state of the economy are all inside lags that slow down the implementation of fiscal policy.

Question 9

_______ is the school of thought that emphasizes the role of taxes in the supply of output in the economy.

Accepted Answer

Supply-side economics emphasizes the role of taxes in influencing the supply of output in the economy. It promotes lower tax rates and less government intervention to encourage investment, production, and economic growth. Classical economics and Keynesian economics are more focused on the role of government spending and monetary policy in influencing output and employment. Supply and demand is a basic model used in economics to explain the price and quantity of goods and services in a market.

Question 10

Although running a budget deficit during a recession should not be a source of concern, running a budget deficit when there is no recession is a bad policy due to:

Accepted Answer

Running a budget deficit when there is no recession can lead to crowding out. This is because when the government borrows money to finance its spending, it increases the demand for loanable funds, leading to an increase in interest rates. This increase in interest rates may discourage private investment, leading to a reduction in aggregate demand and potentially slowing economic growth.

Question 11

The largest category of discretionary spending is/are:

Accepted Answer

Defense spending is typically the largest category of discretionary spending in the U.S. federal budget.

Question 12

Congress increases government spending. This is an example of:

Accepted Answer

Congress increasing government spending is an example of fiscal policy, which involves changes in government spending and taxation to influence the economy. Monetary policy involves changes in the money supply and interest rates, incomes policy aims to address wage and price inflation, and supply-side policy focuses on increasing production and efficiency in the economy.

Question 13

As the Vietnam War began and the economy started to overheat from the large military spending, policymakers:

Accepted Answer

Policymakers enacted a temporary tax surcharge to counteract the economic effects of the Vietnam War and large military spending, as they recognized the potential for inflation to occur. This temporary tax surcharge helped to stabilize the economy during this time period.

Question 14

Recall Application 3, "Evaluating the Obama Fiscal Stimulus" to answer the following questions:
-According to the application, which of the following was part of the methodology used by the Council of Economic Advisers when estimating the effects of the stimulus package?

Accepted Answer

The answer of Recall Application 3, "Evaluating the Obama Fiscal...

Question 15

The Kennedy administration was not concerned about the possible negative effect of large tax cuts because:

Accepted Answer

The Kennedy administration believed that the tax cuts would stimulate economic growth and lead to higher tax revenues in the future. As a result, they did not view the resulting federal deficit as a major concern.

Question 16

The federal government runs a budget deficit when:

Accepted Answer

A budget deficit occurs when the government spends more money than it receives in tax revenues.

Question 17

Recall Application 3, "Evaluating the Obama Fiscal Stimulus" to answer the following questions:
-According to the application, did the economic stimulus package of the U.S. in 2009 have an economic effect?

Accepted Answer

The application states that the stimulus package did have an economic effect, despite the fact that the negative effects of the recession still lingered. It is noted that the package led to job creation and increased GDP growth.

Question 18

An increase in the federal budget deficit during a recession serves as an automatic economic stabilizer because:

Accepted Answer

All of the given options are correct. An increase in the federal budget deficit during a recession helps to stabilize the economy by providing a boost to the aggregate demand. Transfer payments such as unemployment insurance help to increase household income and reduce the negative impact of recession. Lower corporate profits and personal incomes result in a lower tax load which helps to reduce the decline in investment and consumption spending, respectively.

Question 19

The temporary tax surcharge enacted during the early years of the Vietnam War failed to decrease consumer spending because consumers based their spending on:

Accepted Answer

The temporary tax surcharge did not decrease consumer spending because consumers based their spending on their permanent income, which is their long-term average income, rather than their current income.

Question 20

Figure 10.1
-Refer to Figure 10.1 to answer this question. Suppose that the economy were at point A, and the government increases taxes. In the short run , the economy will move to point:

Accepted Answer

The answer of  Figure 10.1
-Refer to Figure 10.1 to...

Quiz 10: Fiscal Policy