ECON 131 Government and Public Choice; Government Spending and Taxation

Suppose the government imposes a $10 per month tax on cell phone service. If the demand curve for cell phone service is perfectly inelastic and the supply curve is upward-sloping, the monthly price for cell phone service will increase by:

$10

Suppose a small economy has two income tax rates: 15% for all income up to $50,000 and 30% for any income earned above $50,000. Suppose that prior to the recession, the economy had five workers earning the following salaries: Amy: $20,000 Betty: $40,000 Charlie: $60,000 Dimitry: $80,000 Evelyn: $100,000 The total tax revenue paid by the five workers is _____, and it represents _____ percent of total income.

$58,500; 19.5%

If personal income up to and including $25,000 is not taxed, income of $25,001 to $50,000 is taxed at 10%, and income over $50,000 is taxed at 20%, then a family earning an income of $75,000 will pay an AVERAGE tax rate of _____%.

10%

Suppose that the five residents of a small village have the following incomes: $10,000; $20,000; $30,000; $40,000; $50,000. The proportion of total income earned by the lowest two quintiles is _____ and the proportion earned by the highest two quintiles is _____.

20%; 60%

Suppose the price elasticity of demand is relatively elastic and the price elasticity of supply is relatively inelastic in a specific market. If an excise tax is imposed on this good, who will bear the greater burden of the tax?

Producers

Brianna and Jess must pay an income tax. Both Brianna and Jess pay $1,000 in taxes each year, but Brianna earns $20,000 and Jess earns $10,000. From this information, you can infer that this tax is:

Regressive

Which statement is most likely to be a true one?

Wages are the most common form of income in the U.S. economy.

Which of the following fiscal policies would least likely result in an increase in aggregate supply?

an increase in business regulations

A shift of the long-run aggregate supply curve to the right suggests which of the following?

an increase in productivity

Reducing government spending, reducing transfer payments, or raising taxes describes which policy?

contractionary fiscal policy

If demand and supply are both very inelastic, a decrease in the rate of an excise tax will likely:

decrease government revenue.

All of the following programs are considered mandatory spending EXCEPT:

national defense.

One argument against using taxation to pay off the public debt is that it will redistribute wealth from:

poorer people who do not own bonds to richer bondholders.

If the government wants to minimize the deadweight loss from taxes, it should tax goods for which the:

price elasticity of demand is low.

The evidence suggests that federal taxes in the U.S. economy are:

progressive

If an economy is in a recession, what would expansionary fiscal policy do?

shift AD to the right

Which of these is not a common cause of income inequality?

the choice of city where one lives

(Figure: Aggregate Demand and Supply) The graph depicts an economy originally in equilibrium at point e. Assume that the government uses expansionary fiscal policy. The movement from point a to point b is due to:

workers and suppliers adjusting their expectations to higher price levels.

If the poverty threshold for a family of four is $24,000 and the Shoenfelds earned $21,000, their income deficit is _____ and their ratio of income to poverty is _____.

$3,000; 0.875

Suppose the government collected $3.2 trillion in tax revenues and spent $3.8 trillion, and discretionary spending was $1.5 trillion. For the government to fully balance the budget this year, how much discretionary spending needs to be cut?

40%

Which of the following statements is (are) true? I. Automatic stabilizers require overt action by Congress or other policymakers to implement. II. Discretionary increases in government spending are classified as automatic stabilizers. III. When the economy is growing, tax receipts increase and transfer payments decrease, helping to automatically stabilize the economy by preventing it from growing too fast.

III only

_____ are U.S. Treasury securities considered to be the closest to providing a risk-free return while _____ are U.S. Treasury securities considered with maturity periods ranging from 1 to 10 years and _____ are U.S. Treasury securities that have the longest maturity periods.

Treasury bills; Treasury notes; Treasury bonds