ch 7 8 econ

Suppose the CPI market basket cost $800 during the base period and $1,800 today. What is the CPI for today? *

225

In this illustration, approximately what share of taxable income does the highest earner actually pay in taxes? *

24 percent

Overall, how would you describe the importance of state corporate taxes to state revenues? *

They are a relatively small source of revenue.

Why are imports not included in gross domestic product? *

They are produced outside the country.

Why is the core inflation rate calculated separately from the inflation rate? *

To better show long term effects on inflation.

Which of the following entitlement programs is run by both the federal and state governments? *

Unemployment insurance

Which of the following is an example of an external shock? *

a destructive earthquake

Which of the following is another reason producers might raise prices that could lead to a wage-price spiral? *

a poor tomato crop

Workfare is *

a program that requires work in exchange for temporary help from the government.

If real GDP falls for two consecutive quarters, the economy is said to be in __________. *

a recession

Which scenario gives the saver the greatest purchasing power? *

an interest rate of 4 percent and an inflation rate of 1 percent

The Earned Income Tax Credit program began as a response to *

criticisms of government antipoverty programs.

Compared to the federal government, states have a relatively easy time balancing their budgets because of *

having separate operating and capital budgets.

If income tax rates were raised on the wealthiest earners and lowered for everybody else, how would you describe the new tax rates? *

more progressive

The goal of the structure shown in this table is to make federal income taxes *

more progressive.

The portion of the budget about which lawmakers today make year-to-year spending decisions is approximately *

one third of the budget.

Which type of tax takes a higher percentage of income from poorer people than from wealthier people? *

regressive

Which idea or concept underlies Social Security, Medicare, and unemployment taxes? *

supporting people who have limited ability to support themselves through work

Which of the following would be MOST interested in finding out how many rooms there were in a person's house? *

tax assessor

Which law did Bill Clinton sign in 1996 to encourage welfare recipients to enter the workforce? *

the Personal Responsibility and Work Opportunity Reconciliation Act

The total amount of goods and services in the economy available at all possible price levels is *

the aggregate supply.

Why are intermediate goods not included in GDP? *

to avoid counting them twice in GDP

Why do you think the Federal Reserve Bank sometimes lowers interest rates on loans to commercial banks? *

to encourage borrowing to stimulate economic activity

Why do we have tariffs today? *

to protect American farmers and industries from foreign competitors

What is the purpose of the Earned Income Tax Credit? *

to reduce the tax burden on low-income families

Which of the following did John J. Raskob prove?

*It is not always possible to forecast a business cycle.

The Congress shall have Power 1. To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;—Article 1, Section 8, Clause 1 of the Constitution of the United States. This passage from the Constitution supports which of the following statements? *

A national tax cannot be levied at different rates in different states.

Consumer sentiment is a measure of attitudes about the economy in general and individual financial prospects. How would you say Americans felt about the economy in 2008? *

Americans did not feel confident about the economy.

What does this photograph suggest about the challenges facing lawmakers who may want to address concerns about funding for major entitlements? *

Attempts to change the program often meet with strong opposition.

How does capital investment lead to economic growth? *

Businesses use the money invested to hire people and buy more equipment.

What does this graph show about who pays for a $.50 tax increase on a given good in a market where demand for the good is elastic? *

Consumers pay $.10 and suppliers absorb $.40 of the tax increase.

What point is the cartoon making about credit cards? *

Consumers should be cautious about credit card use.

When people buy a ticket to get into a state museum, what source of state revenue are they contributing to? *

Current Charges

External shocks can alter business cycles because they affect *

aggregate supply.

How do we figure out the unemployment rate? *

Divide the number of people who are unemployed by the total labor force, and then multiply by 100.

The humor behind this cartoon is based on what observation about federal income taxes? *

Even lower-income people may have to pay income taxes.

What is one way that gross domestic product differs from gross national product? *

GDP does not include income earned outside the U.S. by U.S. firms and citizens and GNP does.

GDP per capita will grow when *

GDP rises faster than the population.

Why does capital deepening work with human capital? *

Greater skill increases workers' output.

How is high GDP per capita linked to quality of life? *

High GDP per capita usually indicates better nutrition, housing, education, and job opportunities.

Which answer best describes the effect of higher tax rates on investment? *

Higher tax rates increase investment if the revenue is used to improve infrastructure.

Describe the purchasing power of a person who hasn't received a raise in three years and whose savings earns 0.5 percent while the inflation rate is 2 percent. *

His purchasing power is decreasing.

How does an investment in physical capital generally affect labor productivity and output? *

It increases labor productivity and output.

What is offshoring and why is it a cause of structural unemployment in the United States? *

It is when companies relocate facilities to countries where costs are lower which means relocating jobs.

According to the graphic, why does capital deepening create overall economic growth? *

It leads to more output and higher wages.

What did the Federal Reserve do to interest rates in 2008, and why? *

It lowered rates to encourage business investment and economic growth.

How does inflation influence purchasing power? *

It reduces it

Suppose that a state operating budget included more spending than revenue. Which of the following is the most likely response? *

Legislators vote to decrease overall state spending.

How does low unemployment lead to higher inflation? *

Low unemployment leads to an increase in wages.

Suppose Nicole earns $20,000 per year, Michelle earns $40,000 per year, and Rosa earns $100,000 per year. Under a regressive tax, who would pay a greater percentage of her income in taxes? *

Nicole

How does nominal GDP differ from real GDP? *

Nominal GDP is based on current prices and real GDP is based on constant prices.

In a progressive tax system, which of the following statements must be true? *

People with lower incomes pay the lowest share of their income in taxes.

"It takes about two and a half percent growth just to keep unemployment stable."—Ben Bernanke, Chairman of the Federal Reserve, December 5, 2010. Which explains the reason unemployment doesn't decrease when economic growth is two and a half percent? *

Population growth adds new people to the workforce at about that rate.

What happened to gas prices in 2008? *

Prices dropped because a financial crisis decreased demand.

If aggregate demand increases, what happens to real GDP? *

Real GDP rises.

Based on the graph, which of the following statements is true? *

Real median household income for all races was lower in 2012 than in 2000.

How is saving linked to capital formation? *

Saving provides money for investment in human and physical capital.

What are the three largest categories of expenditures in the federal budget? *

Social Security, Medicare, and Medicaid

Why does an increase in the price of tomato products lead people to demand higher pay? *

The rising price of tomatoes affects prices of many foods that families buy.

This graph supports which of the following statements? *

Tariffs today mostly serve to protect certain industries.

Refer to the table to answer this question: Which of the following illustrates the progressive structure of the federal income tax? *

Taxable income of $180,000 is taxed at a higher rate than a taxable income of $80,000.

Which of the following statements best describes what happened to the GDP in 2008? *

The GDP fell because of a major recession.

In terms of the federal budget, entitlement programs are significant because *

The benefits are fixed by law.

Based on this quote, what could you assume Mellon believed?-"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. . . . It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people." —Andrew Mellon, Treasury Secretary under President Herbert Hoover (1929-1933) *

The business cycle should have been allowed to run its course.

Why do economists calculate GDP by both the expenditure approach and the income approach? *

The combined methods provide a more accurate measure of GDP.

Which of the following statements is supported by this graph? *

The higher the income, the lower the share of income paid in sales and excise taxes.

Choose the answer that best describes the correlation between phases of the business cycle and the unemployment rate. *

Unemployment rates increase during a contraction and decrease during an expansion.

Which of the following usually results from high consumer confidence? *

a rise in gross domestic product

If the government wanted to encourage people to exercise more, it would most likely *

allow a tax deduction for health club fees.

What key issue challenges the largest entitlement programs in the United States? *

an aging population

What is a federal tax on money inherited from a deceased loved one? *

an estate tax

Lawmakers believe that the proposed tax will improve the public health by discouraging consumption of a product that has been linked to a variety of health problems. This passage might have come from a news story that is discussing which of the following? *

an excise tax

Which of the following has likely contributed most to the development shown in this graph? *

an excise tax

Which of the following is not included in aggregate demand? *

an increase in supply

Why does the government collect federal income tax in a "pay-as-you-earn" system? *

because the government needs the money to meet its expenses throughout the year

Why does purchasing power change over time? *

because the prices of goods and services change

Which is an example of a nonmarket activity? *

cleaning your house

Who bears the greater burden of a tax on a good or service when demand is inelastic? *

consumers

If someone loses his or her job during a recession, what type of unemployment is that? *

cyclical

According to this infographic, increased wages for workers in a fertilizer plant could result in *

demands for higher wages in many industries.

"President Obama's speech on Thursday was the most important statement on counterterrorism policy since the 2001 attacks, a momentous turning point in post-9/11 America. For the first time, a president stated clearly and unequivocally that the state of perpetual warfare that began nearly 12 years ago is unsustainable for a democracy and must come to an end in the not-too-distant future." —"The End of Perpetual War," The Editorial Board, New York Times Online, May 23, 2013. The policy change discussed here would likely have the greatest impact on *

discretionary spending.

What problem is solved by using real GDP? *

distortions caused by changes in prices over time

Devin's family decided to see a movie at the discount cinema on a Tuesday rather than at the larger cinema on a Friday. Their decision might have been the result of which effect of inflation? *

effects on purchasing power

This cartoon is making the point that during a recession *

everything gets cut back.

An example of a tax that is designed to affect behavior is a(n) *

excise tax on harmful substances.

According to the U.S. Constitution, any tax levied by the government must be *

for the common defense or general welfare.

What will most likely still occur when the economy has achieved full employment? *

frictional, seasonal, and structural unemployment

A significant part of federal aid to state and local governments goes toward *

funding social programs.

"The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little."—Franklin Roosevelt. Based on this quote, you could assume that Roosevelt believed *

government should do more to help the poor.

Which of the following is the primary measure of a nation's income and output? *

gross domestic product

What is a person's taxable income? *

gross income minus exemptions and deductions

What set off the economic slump of the early 1980s? *

high consumer interest rates

historically low interest rates

historically low interest rates

Which of the following industries were especially hard hit following the terrorist attacks of September 11, 2001? *

hotel and airline

The Lorenz Curve shows us *

how income is distributed in the economy.

What is disposable personal income? *

how much people have to spend after paying their taxes

A city that wants to raise tax revenue from tourists would likely do which of the following? *

impose a tax on meals served at restaurants

The tax dollars being spent in this photo will result in *

improved infrastructure and capital deepening.

The food stamp program is an example of a(n) *

in-kind benefit.

Which government tax program would most likely support the installation on the roof in the photo?

income tax credits

What is the largest estimated source of federal receipts for 2014? *

individual income taxes

The likelihood that a tax burden, or the incidence of a tax, will fall on a consumer rather than the producer of the taxed good or service goes up if demand is *

inelastic

When the economy is expanding, which of the following is a business MOST likely to do? *

invest in new equipment

Which of the following is NOT a part of the business cycle? *

investment

When real GDP stops rising, the economy has reached a __________. *

peak

Whose retirements are funded by the taxes today's wage earners are now paying into the Social Security system? *

people who are currently retired

What is the tax structure of the federal individual income tax? *

progressive

What kind of tax is most likely the major source of revenue that supports these workers? *

property taxes

The main local tax source of funding for public schools is *

property taxes.

What is the largest spending category in state budgets nationwide? *

public education

Which of the following would lead to capital deepening and economic growth? *

purchasing more efficient machines

Which item best defines federal discretionary spending? *

spending on which lawmakers can make choices

The growth of the Internet has caused newspaper circulation to fall. What type of unemployment might this printing press operator face in the future? *

structural unemployment

"We know there are a lot of people in the unemployment pool that do not match up in their skill set for what jobs are going to be created, and that's an area we've got to keep pressing on." —Austan Goolsbee, economics professor at the University of Chicago Booth School of Business, January 10, 2012. In this quote, Professor Goolsbee is discussing *

structural unemployment.

A person who manages a shoe store may be out of a job as more customers order shoes online instead of shopping in stores. The manager would then be an example of *

structural unemployment.

Unemployment that occurs when workers' skills do not match the jobs that are available is called *

structural unemployment.

In works of historical fiction, and perhaps in real life too, monarchs and rich landowners would gesture toward their vast landholdings and say to their children, "One day, all this will be yours." But in the United States today, they would have to say, "One day, a percentage of this will be yours." This passage could be referring to the impact of which of the following? *

the estate tax

For the system to function properly, there must be enough workers paying in to support all the retired workers receiving benefits. Although the system has worked well, changes in the U.S. population threaten to undermine it. Which "change in the U.S. population" is this passage referring to? *

the growing share of the population made up of retirees

the maintenance of a town's sewer and water systems

the maintenance of a town's sewer and water systems

What is the largest source of capital available for businesses to invest? *

the money that individuals save

Which of the following items would you expect to find in a state's operating budget as opposed to its capital budget? *

the painting of lines on a road

During the 2012 elections, Democratic candidates seemingly took every opportunity to remind voters that the Republican vice presidential candidate, Representative Paul Ryan, had proposed significant changes to the Medicare program. This passage highlights which of the following challenges facing Medicare? *

the political difficulty of making changes to Medicare

The purchase of paper and office supplies for a state government office would be funded out of *

the state's operating budget.

Which of the following features of this diagram would be most worrisome to those planning for the future of entitlement programs such as Social Security and Medicare? *

the tower-like shape of the pyramid on the right

How is the Consumer Price Index calculated? *

updated cost divided by base-period cost and then multiplied by 100

What is a progressive tax? *

when the tax rate rises with the amount of taxable income

Federal income tax is collected on a "pay-as-you-earn" system. This means that individuals usually pay most of their income tax throughout the calendar year as they earn income. What is another name for the system described above? *

withholding