Question 1

A study by Edward Prescott found that the ________ marginal tax rates in the United States relative to Europe resulted in a ________ quantity of labor supplied in the United States.

Accepted Answer

Prescott's study concluded that lower marginal tax rates in the United States, compared to Europe, led to a larger quantity of labor supplied in the U.S. This is because lower taxes increase the incentive for work by allowing individuals to keep more of their earnings.

Question 2

Double taxation refers to

Accepted Answer

Double taxation occurs when both corporations and individuals pay taxes on the same income. In option C, corporations are paying taxes on their profits (income) and individuals are paying taxes on dividends (distribution of profits to shareholders), hence meeting the criteria of double taxation. Options A, B, and D do not meet the criteria of double taxation as they are either for single taxation or taxation on different types of income.

Question 3

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase ________ through changing ________.

Accepted Answer

The answer of Fiscal policy actions that are intended to...

Question 4

Consider a tax cut which affects not only consumer disposable income,but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving.In the long run we would expect this tax cut to

Accepted Answer

A tax cut that affects not only consumer disposable income but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving would stimulate both consumption and investment, leading to an increase in aggregate demand. This increase in demand would lead to an increase in both the price level and the level of real GDP. In the long run, firms may respond to increased demand by increasing production, which would put downward pressure on prices, but overall, the impact on prices is expected to be positive.

Question 5

The Trump administration hopes that its program of infrastructure spending might expand employment by luring some prime-age workers back into the labor force.This would ________ the employment-population ratio,which would increase ________.

Accepted Answer

If the program successfully lures prime-age workers back into the labor force, it will increase the number of hours worked, which will ultimately increase the employment-population ratio. This increase in hours worked will not necessarily lead to an immediate increase in labor productivity.

Question 6

If tax reduction and simplification are effective,then

Accepted Answer

The answer of If tax reduction and simplification are effective,then
...

Question 7

Tax reduction and simplification should ________ long-run aggregate supply and ________ aggregate demand.

Accepted Answer

Tax reduction and simplification can increase the incentive for production, leading to an increase in long-run aggregate supply. Additionally, the increase in disposable income resulting from tax reduction can stimulate consumer spending, increasing aggregate demand. Therefore, tax reduction and simplification should increase both long-run aggregate supply and aggregate demand.

Question 8

Compare the effect on the price level and real GDP of a decrease in tax rates assuming a supply-side effect versus no supply-side effect.Compared to no supply-side effect,including a supply-side effect for the decrease in tax rates will cause the price level to increase ________ and real GDP to increase ________.

Accepted Answer

Including a supply-side effect for the decrease in tax rates typically leads to a decrease in the price level because it reduces costs for businesses and increases supply. It also leads to an increase in real GDP because lower tax rates can incentivize investment and work, leading to higher productivity and economic growth.

Question 9

Economists who believe the supply-side effects of tax cuts are small essentially believe that

Accepted Answer

Economists who believe the supply-side effects of tax cuts are small believe that tax cuts mainly affect aggregate demand, rather than increasing aggregate supply. This means that the primary effect of tax cuts is to increase consumer and business spending, which leads to an increase in production and employment, without necessarily causing significant increases in the quantity of labor supplied or changes in the price level.

Question 10

As the tax wedge associated with a given economic activity gets smaller,we would expect

Accepted Answer

When the tax wedge associated with a given economic activity gets smaller, the cost of engaging in that activity decreases for both the producer and the consumer. Hence, there is an increased incentive for producers to supply more of the good or service, and consumers to demand more of it. This leads to an increase in the quantity of that economic activity.

Question 11

A decrease in which of the following would decrease the tax wedge?

Accepted Answer

A decrease in marginal tax rates would lead to a decrease in the tax wedge, which is the difference between the total cost of labor to employers and the net income received by employees. This would mean that employees would keep more of their income, and employers would have lower labor costs, which could promote economic growth. Changes in the money supply, national debt, and federal budget deficit are not directly related to the tax wedge.

Question 12

The Trump administration hopes to expand apprenticeship programs that provide skills needed by workers.This would ________ the employment-population ratio,which would increase ________.

Accepted Answer

Expanding apprenticeship programs would equip workers with necessary skills, likely increasing the employment-population ratio as more individuals become employable. This would lead to an increase in the growth rate of hours worked, as more skilled workers enter the workforce and contribute their labor.

Question 13

The growth rate of real GDP equals

Accepted Answer

The growth rate of real GDP equals the growth rate of hours worked plus the growth rate of labor productivity. This can be represented by the equation: Real GDP growth rate = Growth rate of hours worked + Growth rate of labor productivity. This is because real GDP is the product of hours worked and labor productivity, so any change in either factor will affect the growth rate of real GDP.

Question 14

The growth rate of hours worked depends on all of the following except

Accepted Answer

The growth rate of hours worked depends on the rate of population growth since more people mean a larger pool of potential workers. It also depends on changes in the employment-population ratio as this measures how many people are employed as a percentage of the total population. Additionally, changes in the hours each employee works affects the total number of hours worked. However, changes in the worker-to-retiree ratio do not directly affect the growth rate of hours worked, as retirees are not counted in the labor force.

Question 15

The tax wedge is the difference between the

Accepted Answer

The tax wedge represents the difference between the pretax and posttax returns to an economic activity, such as employment or investment. It is the amount of tax that is taken out of a worker's gross pay, which results in a decrease in their disposable income and reduces the incentive to work or invest. A and B are incorrect because they refer to specific government fiscal policies, while D relates to the difference between inflation and the nominal interest rate.

Question 16

In 2017,the Congressional Budget Office forecast that real GDP would grow at an average annual rate of ________ for the years 2017-2027.

Accepted Answer

This is the only option that falls within the range of typical GDP growth rates in the United States. While growth rates can fluctuate year to year, a long-term average rate of 1.9% is reasonable and in line with historical trends.

Question 17

The Trump administration's policies to increase labor productivity growth include all of the following except

Accepted Answer

The Trump administration has not proposed raising the federal minimum wage as a policy to increase labor productivity growth. The other three options are policies that have been proposed or implemented by the administration to achieve this goal.

Question 18

In 2017,the Congressional Budget Office forecast that which of the following would have the lowest average annual growth rate for the years 2017-2027?

Accepted Answer

The answer of In 2017,the Congressional Budget Office forecast that...

Question 19

In November 2017, the House Ways and Means Committee announced a tax reform bill which includes hundreds of changes to the tax code. Overall, the tax plan represents a move in the direction of greater neutrality and global competitiveness. Following are eight of the most important provisions in the tax bill.
1. The corporate tax rate would be reduced to 20 percent.
2. Pass-through business income would be taxed at a maximum rate of 25 percent.
3. Some disincentives to investment would be rolled back.
4. The country would move to a territorial tax system.
5. Many itemized deductions would be eliminated.
6. The estate tax would be repealed.
7. The tax treatment of interest would change.
8. Tax expenditures would be curtailed.
Source: Jared Walczak and Amir El-Sibaie, "Eight Important Changes in the Tax Cuts and Jobs Act," taxfoundation.org, November 2, 2017.
-Refer to the Article Summary.A reduction in the corporate tax rate to 20 percent would ________ the return corporations receive from new investments in equipment and factories,and this would ________ aggregate supply.

Accepted Answer

Reducing the corporate tax rate to 20 percent would increase the return corporations receive from new investments, which in turn would increase aggregate supply by encouraging more investment.

Question 20

Reducing the marginal tax rate on income will

Accepted Answer

Reducing the marginal tax rate on income will have all three effects mentioned in the answer choices. It will reduce the tax wedge faced by workers, leading to an increase in labor supplied. It will also raise the return to entrepreneurship, encouraging the opening of new businesses. Finally, it will increase the after-tax return on saving, which will encourage saving. Therefore, option D is the correct answer.

Quiz 18: Fiscal Policy

A study by Edward Prescott found that the marginal tax rates in the United States relative to Europe resulted in a quantity of labor supplied in the United States.