Question 1

Fiscal policy refers to the set of policies of the government in relation to:

Accepted Answer

Fiscal policy specifically involves government decisions on taxation and spending to influence the economy. It does not directly deal with the money supply or interest rates, which are typically the realm of monetary policy managed by a central bank.

Question 2

The government's influence over the economy via taxes and expenditure is known as _____ policy.

Accepted Answer

Fiscal policy refers to the use of government spending and taxation to influence the economy. This includes decisions on tax rates and government budgets.

Question 3

The expenditures of the U.S. federal government that are required by law are known as _____ spending.

Accepted Answer

Mandatory spending is the term used to describe expenditures that are required by law, such as Social Security, Medicare, and the interest on the national debt. These are not subject to the annual budget process.

Question 4

The amount of U.S. federal government spending that is chosen by the Congress and the president is known as _____ spending.

Accepted Answer

Discretionary spending is the portion of the U.S. federal government budget that is decided upon annually by Congress and the President through the appropriations process. This includes funding for defense, education, and many other programs.

Question 5

A tax system in which low-income people pay a higher proportion of their income in taxes than high-income people is known as _____ tax system.

Accepted Answer

A regressive tax system is one where lower-income individuals or entities pay a higher percentage of their incomes in taxes compared to higher-income earners. This is in contrast to a progressive tax system, where the tax rate increases as the taxable amount increases.

Question 6

Because low-income people spend a _____ proportion of their income in buying goods and services than high-income people, a sales tax is a _____ tax.

Accepted Answer

Low-income people spend a higher proportion of their income on goods and services, making a sales tax regressive because it takes a larger percentage of income from low-income earners than from high-income earners.

Question 7

A tax system in which high-income people pay a higher proportion of their income in taxes than low-income people is known as ______ tax system.

Accepted Answer

A progressive tax system is characterized by higher income individuals paying a larger percentage of their income in taxes compared to those with lower incomes.

Question 8

In one economy, low-income people pay 10 percent of their income in taxes, and high-income people pay 18 percent of their income in taxes. This economy has a _____ tax system.

Accepted Answer

A progressive tax system is one in which the tax rate increases as the taxable amount increases. In the given scenario, high-income people pay a higher percentage of their income in taxes compared to low-income people, which is characteristic of a progressive tax system.

Question 9

In one economy, both low-income and high-income people pay 10 percent of their income in taxes. In this case, the economy has a _____ tax system.

Accepted Answer

A proportional tax system is one in which everyone pays the same percentage of their income in taxes, regardless of their income level. Since both low-income and high-income people pay 10 percent, it is a proportional system.

Question 10

A tax system in which everyone pays the same proportion of his or her income in taxes is called a _____ tax system.

Accepted Answer

A proportional tax system is one in which everyone pays the same proportion of their income in taxes, regardless of the absolute amount of income.

Question 11

An economy's total government debt at the end of 2017 is $10 trillion. In 2018, the government spends $2 trillion, and its tax revenue is $1 trillion. What will be the government debt at the end of 2018?

Accepted Answer

The government debt at the end of 2018 will be $11 trillion because the government spent $2 trillion but only received $1 trillion in tax revenue, leading to an increase in debt by $1 trillion from the original $10 trillion.

Question 12

An economy's total government debt at the end of 2017 is $10 trillion. In 2018, the government spends $2 trillion, and its debt at the end of 2018 is $9 trillion. How much revenue did the government collect in taxes in 2018?

Accepted Answer

The government's debt decreased from $10 trillion to $9 trillion, indicating it paid off $1 trillion of its debt. Since it also spent $2 trillion, it must have collected $3 trillion in taxes to both cover its spending and reduce its debt by $1 trillion.

Question 13

An economy's total government debt at the end of 2017 is $10 trillion. In 2018, the government collects $2 trillion in tax revenue. If the government debt at the end of 2018 is $11 trillion, then how much did the government spend in 2018?

Accepted Answer

The government's debt increased by $1 trillion from $10 trillion to $11 trillion. This means the government spent $1 trillion more than it collected in taxes ($2 trillion). Therefore, the government must have spent $3 trillion in 2018.

Question 14

Which of these statements is true?

Accepted Answer

When government spending is less than the total tax revenue, it means the government is collecting more money than it is spending, resulting in a budget surplus, not necessarily indicating the absence of debt, an increase in debt, or a budget deficit.

Question 15

If the government spending is _____ than the tax revenue, then the government has a budget surplus. In this case, the overall debt of the government will:

Accepted Answer

When government spending is less than tax revenue, it means the government is taking in more money than it is spending, resulting in a budget surplus. This surplus can be used to pay down existing debt, leading to a decrease in the overall debt of the government.

Question 16

If government spending is less than the tax revenue, then the government has a budget _____. In this case, the overall debt of the government will:

Accepted Answer

When government spending is less than tax revenue, it means the government has a budget surplus. This surplus can be used to pay down existing debt, leading to a decrease in the overall debt of the government.

Question 17

If government spending is greater than the tax revenue, then the government has a budget _____. In this case, the overall debt of the government will:

Accepted Answer

When government spending exceeds tax revenue, it results in a budget deficit. This situation typically leads to an increase in the overall debt of the government as it needs to borrow money to cover the shortfall.

Question 18

If government spending is _____ than the tax revenue, then the government is running a budget deficit. In this case, the overall debt of the government will:

Accepted Answer

When government spending is more than the tax revenue, it means the government is spending more money than it is earning, leading to a budget deficit. As a result, the overall debt of the government will increase because it needs to borrow money to cover the shortfall.

Question 19

Suppose that the total debt of the U.S. federal government at the end of 2017 was $19 trillion. In 2018, the government spends $3.2 trillion and collects $2.2 trillion in taxes. What will be the total debt at the end of 2018?

Accepted Answer

The total debt at the end of 2018 will be the debt at the end of 2017 ($19 trillion) plus the deficit for 2018 ($3.2 trillion - $2.2 trillion = $1 trillion), which equals $20 trillion.

Question 20

Suppose that the total debt of the U.S federal government at the end of 2016 was $18 trillion and during 2017 the government runs a budget deficit of $1.5 trillion. The tax revenue of the government was _____ than spending, and the debt at the end of 2017 was:

Accepted Answer

A budget deficit occurs when spending exceeds tax revenue, indicating that tax revenue was less than spending. The debt at the end of 2017 would be the sum of the debt at the end of 2016 ($18 trillion) and the deficit for 2017 ($1.5 trillion), totaling $19.5 trillion.

Quiz 15: Fiscal Policy