chp 15

A U.S. federal government budget surplus occurs when a. government revenue exceeds outlays. b. government outlays exceed revenue. c. government outlays equal revenue. d. the United States borrows money from foreign countries. e. the United States lends money to foreign countries.

a

A marginal tax rate is a. the tax rate paid on a worker's next dollar of income. b. equal to a worker's income tax bracket. c. the total tax paid divided by the amount of taxable income. d. irrelevant for making decisions about earning extra income. e. applied only to high earners under a progressive income tax system.

a

Mandatory outlays are sometimes referred to as ________ programs. a. entitlement b. endorsement c. means-tested d. expansionary e. obligatory

a

The United States has a ________ income tax system. a. progressive b. regressive c. marginal d. good e. bad

a

The largest source of tax revenue for the government is ________ taxes. a. individual income b. corporate income c. social insurance d. estate e. excise

a

The most relevant tax rate for making decisions about earning additional income is the ________ tax rate. a. marginal b. income c. average d. sales e. property

a

Which of the following is NOT a revenue source for the U.S. federal government? a. sales taxes b. federal gasoline taxes c. federal income taxes d. payroll taxes e. admission fees for national parks

a

Budget deficits tend to a. increase during expansions. b. increase during wars. c. decrease during recessions. d. increase over time. e. decrease over time.

b

If policymakers are concerned about the unequal distribution of income within society, then they should prefer a ________ tax system. a. regressive income b. progressive income c. consumption d. proportional income e. per capita

b

In recent years, the growth in foreign-owned debt has a. substantially weakened the U.S. economy. b. helped the U.S. economy by keeping the supply of loanable funds higher than it would be otherwise. c. harmed the U.S. economy by driving up the cost of borrowing. d. harmed the U.S. economy by sending jobs overseas. e. not affected the U.S. economy.

b

The U.S. government could reduce its budget deficit by a. borrowing funds from abroad. b. raising the eligible retirement age to receive Social Security benefits. c. expanding the income assistance programs. d. lowering income tax rates. e. decreasing the level of means-testing for Medicare eligibility.

b

The largest portion of the federal budget is dedicated to a. discretionary spending. b. mandatory outlays. c. interest payments. d. tax collection. e. defense spending.

b

Which of the following is an example of discretionary spending? a. car loan payment b. credit card bill c. mortgage payment d. student loan payment e. service contract bill

b

________ outlays comprise spending that can be altered when the government is setting its annual budget. a. Government b. Discretionary c. Penetrable d. Mandatory e. Perpetual

b

Budget deficits tend to a. increase over time. b. decrease over time. c. increase during recessions. d. increase during expansions. e. grow as the economy grows and shrink as the economy shrinks.

c

Which of the following might be a good reason for running a budget deficit? a. A budget deficit allows for consumption to be more evenly distributed over time, which can be helpful during times of recession. b. It puts the repayment burden on future taxpayers, who are always better able to repay the accumulated debt. c. It is better than increasing taxes, because budget deficits do not have to be repaid. d. It allows for the expansion of entitlement programs to cover more people, thus reducing their financial burdens. e. There is never a good reason for running a budget deficit.

a

________ are payments made to groups or individuals when no good or service is received in return. a. Transfer payments b. Entitlements c. Exempt payments d. Unilateral payments e. Endorsements

a

A U.S. federal government budget deficit occurs when a. government revenue exceeds outlays. b. government outlays exceed revenue. c. government outlays equal revenue. d. the United States borrows money from foreign countries. e. the United States lends money to foreign countries.

b

A budget is a. a record of income and purchases from the previous year. b. a plan for spending and earning money. c. only necessary for individuals with low incomes. d. only necessary for countries suffering from financial crises. e. required to be balanced by Congress.

b

Discretionary spending is a shrinking part of the federal budget. What is a possible consequence to this development? a. Politicians will have more control over spending, increasing favoritism and corruption in Congress. b. Income assistance programs will eventually have revenue shortfalls and be unable to fulfill their obligations. c. There will be more competition for public works and infrastructure projects. d. The federal government will be forced to lapse on interest payments, reducing the overall creditworthiness of the United States. e. State and local governments will eventually assume discretionary spending responsibilities.

c

Mandatory outlays a. usually change during the budget process. b. cannot be altered once they are made into law. c. require changes in existing laws if those outlays are to be altered. d. are a minor component of total outlays, and so are usually ignored. e. are another name for discretionary outlays.

c

Mandatory outlays are different than discretionary outlays because a. mandatory outlays usually change during the budget process, whereas discretionary outlays do not. b. mandatory outlays have been decreasing as a percentage of the federal budget, whereas discretionary outlays have been increasing as a percentage of the federal budget. c. discretionary outlays can be changed during the annual budget process, whereas mandatory outlays cannot. d. discretionary outlays include entitlement programs (such as Social Security and Medicare), whereas mandatory outlays include important government programs (such as defense). e. discretionary outlays comprise the vast majority of the total budget, whereas mandatory outlays make up only a minor fraction.

c

Reforming entitlement programs is difficult because a. there is very little support for reform. b. there are no good ideas for effective reform. c. reforms require changes to existing law, which takes time. d. all the reforms proposed are only short-term solutions. e. the proposed reforms all require increases in existing tax rates, which are difficult to achieve politically.

c

Should we be concerned about a growing federal debt? a. No, because budget deficits are more important to worry about than the federal debt. b. No, because federal debt, unlike private debt, does not have to be repaid. c. Yes, because a large federal debt may slow the rate of economic growth in the future. d. Yes, because if the debt grows too large, we will have to receive bailouts from other countries, which means they will be able to control our policy and economy. e. Yes, because it is likely that the government will confiscate the savings of individuals to pay for the debt.

c

Social Security and Medicare are funded by the collection of ________ taxes. a. individual income b. corporate income c. payroll d. excise e. sales

c

The majority of federal spending is comprised of ________ outlays. a. interest b. discretionary c. mandatory d. defense e. infrastructure

c

The primary source of revenue for the federal government is a. asset seizures. b. corporate income taxes. c. individual income taxes. d. excise taxes. e. military appropriations.

c

Which of the following is considered discretionary government spending? a. payments to Social Security recipients b. payments to unemployment insurance recipients c. payments to government employees d. payments to food stamp recipients e. payments to foreign bondholders

c

Why are interest payments considered mandatory spending in the federal budget? a. They are considered mandatory spending because such payments are fixed at the time of borrowing and cannot be altered. b. They are considered mandatory spending because the interest rates on federal debt are extremely high, and failing to pay accumulated interest would dramatically increase the total debt. c. They are considered mandatory spending because not making such payments could endanger the government's credit rating, which could make it harder to borrow going forward. d. They are considered mandatory spending because interest payments constitute the largest part of yearly government spending. e. They are considered mandatory spending because most interest payments go to American households, and those citizens depend on the interest payments for their livelihoods.

c

A progressive income tax system is one in which a. income tax rates decrease as earned income increases. b. everyone pays the same tax rate, so that wealthier people pay a larger sum of taxes. c. everyone pays the same tax rate, so that people with low incomes pay a smaller sum of taxes. d. income tax rates increase as earned income increases. e. income taxes are based on occupation.

d

Discretionary government spending includes payments made for a. children's health insurance programs. b. deposit insurance payments. c. unemployment compensation. d. the Department of Education. e. pension payments for retired Coast Guard officers.

d

The part of the government budget that includes both spending and transfer payments is known as ________ outlays. a. mandatory b. discretionary c. perpetual d. government e. indiscriminate

d

Transfer payments refer to funds that are transferred from one group in society to another group, a. so these payments have no impact on the government budget deficit. b. so these payments have no impact on the government debt. c. so these payments are unfair to those who lose money in the transfer. d. and these payments represent a growing share of U.S. federal outlays. e. and these payments remain approximately constant over time.

d

Which federal budget category's portion of total government outlays has decreased since 1960? a. Social Security b. Medicare c. Medicaid d. defense e. food stamps

d

Why do wealthy citizens contribute much higher tax revenues to the government than poor citizens? a. Wealthy citizens consume more government services, so they are taxed at a higher rate. b. Wealthy citizens have a much lower average tax rate than poor citizens. c. Wealthy citizens work more hours per week than poor citizens. d. Wealthy citizens have much more taxable income than poor citizens. e. Wealthy citizens do not contribute more tax revenues to the government than poor citizens.

d

Why is a budget deficit not necessarily a bad thing? a. Governments should always spend more than they collect in revenue to encourage economic growth. b. Saving money is not something a government should do. c. As long as the government is paying for things it needs, it is appropriate to spend more than is collected in tax revenue. d. Deficits may allow for tax rate stability during recessions. e. Future generations will always be better equipped to pay back any accumulated deficits.

d

Why is foreign government ownership of U.S. debt NOT currently a huge concern among many economists? a. It could lead to eventual foreign control of our economy and policies, which would encourage economic growth in the future. b. The United States has a proven track record of negotiating debt-forgiveness deals, so it is unlikely that the debt will have to be paid back. c. Foreign ownership of U.S. debt drives interest rates up, which is good for savers in the United States. d. The amount of debt held by foreigners is substantially less than the money the United States owes itself. e. Foreign countries would bail out the United States if its debt ever became too large to manage.

d

________ outlays comprise government spending that is determined by ongoing government programs like Social Security and Medicare. a. Government b. Indiscriminate c. Discretionary d. Mandatory e. Perpetual

d

Are demographics an important factor when planning the federal budget? a. No, because government spending and taxation policies do not discriminate based on any demographic factors. b. No, because demographics do not change much from year to year. c. No, because federal budgets do not change much from year to year. d. Yes, because government benefits are allocated solely based on demographic factors. e. Yes, because many government benefits are received by the fast-growing elderly population, causing implications for future levels of taxation and government benefits for everyone.

e

The U.S. national debt is purchased by entities in the form of a. federal bills. b. debt instruments. c. debt certificates. d. federal reserve notes. e. treasury securities.

e

Which of the following is considered mandatory government spending? a. funding for the Environmental Protection Agency b. payments to active military personnel c. infrastructure maintenance spending d. international aid to poor countries e. payments to Social Security recipients

e

Why is a budget surplus not necessarily a good thing? a. Saving money is not something a government should do. b. It demonstrates a society that is too weak to stand up to the government. c. It means the government thinks a recession is coming, so it is storing funds for the crisis. d. The surplus money is divided among members of Congress, as a reward for managing the economy well. e. It means tax rates may be too high.

e