ECON 2315 CH 15
The revenue that the government raises by printing money is called A. seignorage. B. an indirect tax. C. fiscal policy. D. a direct tax. Another name for seignorage is A. the surcharge. B. the marginal tax. C. the inflation tax. D. the fiscal tax.
A. seignorage. C. the inflation tax.
Which of the following is NOT an example of government capital? A. ten-year Treasury bonds B. public hospitals C. schools D. roads Which type of government capital does the U.S. government mostly invest in? equipment Which type of government capital do state and local governments mostly invest in? structures
A. ten-year Treasury bonds
Discuss four reasons why the Ricardian equivalence proposition isn?t likely to hold exactly. A. Ricardian equivalence might not hold if people face borrowing constraints, if they are shortsighted, if they fail to leave bequests, or if taxes aren't lump sum. B. Ricardian equivalence might not hold if people do not face borrowing constraints, if they are shortsighted, if they fail to leave bequests, or if taxes are lump sum. C. Ricardian equivalence might not hold if people face borrowing constraints, if they are shortsighted, if they fail to leave bequests, or if taxes are lump sum. D. Ricardian equivalence might not hold if people do not face borrowing constraints, if they are shortsighted, if they fail to leave bequests, or if taxes aren't lump sum.
A. Ricardian equivalence might not hold if people face borrowing constraints, if they are shortsighted, if they fail to leave bequests, or if taxes aren't lump sum.
Both transfer programs and taxes affect incentives. Consider a program designed to help the poor that promises each aid recipient a minimum income of $10,000. That is, if the recipient earns less than $10,000, the program supplements his income by enough to bring him up to $10,000. Explain why this program would adversely affect incentives for low-wage recipients. A. The program has very bad incentive effects, because the marginal tax rate for any income earned below $10,000 is 100%. B. The program has very good incentive effects, because the marginal tax rate for any income earned below $10,000 is 0%. C. The program has very bad incentive effects, because the marginal tax rate for any income earned below $10,000 is 50%. D. The program has very good incentive effects, because the marginal tax rate for any income earned below $10,000 is minus−50%. Consider a program with a better incentive effect would be to provide a subsidy to labor income. The program subsidizes labor income at a 25% rate. If a person worked 2000 hours per year at a wage of $4 per hour, to get labor income of $8000, the subsidy would increase the person's wage by 25% to $5 per hour, so he or she would earn $10,000 per year. What are the advantages and disadvantages of this program? A. Advantage: there is a substitution effect toward lower work effort; disadvantage: there is an income effect toward lower work effort. B. Advantage: there is a substitution effect toward greater work effort; disadvantage: there is an income effect toward greater work effort. C. Advantage: there is a substitution effect toward lower work effort; disadvantage: there is an income effect toward greater work effort. D. Advantage: there is a substitution effect toward greater work effort; disadvantage: there is an income effect toward lower work effort.
A. The program has very bad incentive effects, because the marginal tax rate for any income earned below $10,000 is 100%. D. Advantage: there is a substitution effect toward greater work effort; disadvantage: there is an income effect toward lower work effort.
An automatic stabilizer is a provision in the budget that causes A. government spending to rise or taxes to fall automatically when GDP falls. B. an increase in the money supply automatically when GDP falls. C. government spending to fall or taxes to rise automatically when GDP falls. D. a decrease in the money supply automatically when GDP falls. For proponents of antirecessionary fiscal policies, what advantage do automatic stabilizers have over other types of taxing and spending policies? The advantage of automatic stabilizers over legislated changes in spending and taxes is that they _____, while legislation _____. A. cause the real interest rate to decline; causes the real interest rate to rise B. can be coordinated with monetary policy; cannot be coordinated with monetary policy C. occur quickly; takes a long time to put in place D. take a long time to put in place; occurs quickly
A. government spending to rise or taxes to fall automatically when GDP falls. C. occur quickly; takes a long time to put in place
1.) The U.S. government's 2009 stimulus package was heavily weighted toward government expenditures, and its projected impact sparked much debate between Keynesian and classical economists. 2.) In the context of the standard IS-LM model, Keynesians disagreed with classical economists and projected that the stimulus package would yield a relatively __________ increase in output due to the __________ of prices in the short run. A. large; inflexibility B. large; flexibility C. small; flexibility D. small; inflexibility 3.) Because the classical version of the IS-LM model envisioned a wealth effect, it ended up concurring with the Keynesian version that temporary increases in government spending would lead to higher output. 4.) The latest research regarding the size of the government spending multiplier suggests the multiplier is greatest when the economy is A. in recession and the zero lower bound constrains monetary policy. B. expanding and the zero lower bound constrains monetary policy. C. in recession and the zero lower bound is not constraining monetary policy. D. expanding and the zero lower bound is not constraining monetary policy.
A. large; inflexibility A. in recession and the zero lower bound constrains monetary policy.
In what ways is the government debt a potential burden on future generations? A. distortions from lower future tax rates and lower future capital B. distortions from higher future tax rates and lower future capital C. distortions from lower future tax rates and higher future capital D. distortions from higher future tax rates and higher future capital What is the relationship between Ricardian equivalence and the idea that government debt is a burden? A. If the Ricardian equivalence proposition is valid, a tax cut does not cause consumption to rise, so there is a decrease in national saving. B. If the Ricardian equivalence proposition is valid, a tax cut does not cause consumption to rise, so there is no change in national saving. C. If the Ricardian equivalence proposition is valid, a tax cut does not cause consumption to rise, so there is an increase in national saving. D. If the Ricardian equivalence proposition is valid, a tax cut causes consumption to rise, so there is no change in national saving.
B. distortions from higher future tax rates and lower future capital B. If the Ricardian equivalence proposition is valid, a tax cut does not cause consumption to rise, so there is no change in national saving.
For the past 35 years, which category of U.S. federal, state, and local government tax receipts has been the largest? A. taxes on production and imports B. personal taxes C. corporate profit taxes D. contributions from social insurance For the past 35 years, which category of U.S. federal, state, and local government tax receipts has been the smallest? A. contributions from social insurance B. corporate profit taxes C. taxes on production and imports D. personal taxes
B. personal taxes B. corporate profit taxes
Define inflation tax (also called seignorage). A. The inflation tax arises when the government declines to sell inflation-indexed bonds. B. The inflation tax arises when the government taxes nominal interest income instead of real interest income. C. The inflation tax arises when the government raises revenue by printing money. D. The inflation tax arises when the government increases statuatory marginal tax rates when inflation increases. How does the government collect the inflation tax, and who pays it? A. The government collects the inflation tax by printing money to purchase goods and services; the tax is paid by anyone who holds money. B. The government collects the inflation tax by increasing excise taxes on goods and services; the tax is paid by anyone who buys goods and services. C. The government collects the inflation tax by increasing excise taxes on goods and services; the tax is paid by anyone who holds money. D. The government collects the inflation tax by printing money to purchase goods and services; the tax is paid by anyone who buys goods and services. Can the government always increase its real revenues from the inflation tax by increasing money growth and inflation? A. Yes, because even though the inflation rate is high, it generates a rapid economic expansion, increasing real money demand enough that seignorage revenue increases. B. No, because a high enough inflation rate causes a severe recession, so seignorage revenue decreases. C. No, because a high enough inflation rate causes the real money supply to fall enough that seignorage revenue begins to fall when inflation increases. D. Yes, no matter how high the inflation rate is, seignorage revenue rises when inflation increases, though at a decreasing rate.
C. The inflation tax arises when the government raises revenue by printing money. A. The government collects the inflation tax by printing money to purchase goods and services; the tax is paid by anyone who holds money. C. No, because a high enough inflation rate causes the real money supply to fall enough that seignorage revenue begins to fall when inflation increases.
Why do economists suggest that tax rates be kept roughly constant over time, rather than alternating between high and low levels? A. Varying between a high and low tax rate leads to higher inflation than keeping the tax rate constant at a medium level. B. Varying between a high and low tax rate leads to more unemployment than keeping the tax rate constant at a medium level. C. Varying between a high and low tax rate leads to a greater average distortion than keeping the tax rate constant at a medium level. D. Varying between a high and low tax rate leads to a lower average distortion than keeping the tax rate constant at a medium level.
C. Varying between a high and low tax rate leads to a greater average distortion than keeping the tax rate constant at a medium level.
Compared with most other OECD countries, how high is the ratio of U.S. government spending to GDP? A. about average B. higher than most other OECD countries C. lower than most other OECD countries D. the highest of all OECD countries
C. lower than most other OECD countries
Which concept of the government budget deficit indicates what the government budget deficit would be (given the tax and spending policies currently in force) if the economy were operating at its full-employment level? A. the real deficit B. the general-equilibrium deficit C. the full-employment deficit D. the potential deficit In a recession, which deficit concept tends to rise relative to the other one, the full-employment deficit or the actual deficit? actual deficit
C. the full-employment deficit
How is government debt related to the government deficit? A. The government deficit is not related to the change in the government debt. B. The government debt is the change in the government deficit. C. The government deficit is the change in the government debt times the real interest rate. D. The government deficit is the change in the government debt. What of the following factors would contribute to a large increase in the debt-GDP ratio? A. a low deficit relative to the real interest rate times nominal GDP B. a high inflation rate C. a high deficit relative to GDP D. a fast growth rate of nominal GDP
D. The government deficit is the change in the government debt. C. a high deficit relative to GDP
1.) Which of the following is true about supply-side economics? A. It maintains that economic behavior may react to changes in taxes, but only to a very small degree. B. Its supporters lobbied against ERTA and other similar tax changes in the 1980s. C. It predicted that the supply of labor would decrease significantly as a result of legal changes like ERTA. D. Supply-side economics maintains that economic behavior will react strongly to changes in taxes. 2.) As a result of ERTA, A. average tax rates rose and marginal tax rates fell. B. average tax rates fell and marginal tax rates rose. C. both average and marginal tax rates fell. D. both average and marginal tax rates rose. As a result of the 1986 Tax Reform Act, A. average tax rates fell and marginal tax rates rose. B. both average and marginal tax rates fell. C. average tax rates rose and marginal tax rates fell. D. both average and marginal tax rates rose. 3.) The tax revisions in the 1980s led to A. increases in the supply of labor, but larger increases than those predicted by supply-side economics. B. decreases in the supply of labor, but smaller decreases than those predicted by supply-side economics. C. decreases in the supply of labor, but larger decreases than those predicted by supply-side economics. D. increases in the supply of labor, but smaller increases than those predicted by supply-side economics.
D. Supply-side economics maintains that economic behavior will react strongly to changes in taxes. C. both average and marginal tax rates fell. C. average tax rates rose and marginal tax rates fell. D. increases in the supply of labor, but smaller increases than those predicted by supply-side economics.
Why is some state and local spending paid for by grants in aid from the Federal government instead of entirely through taxes levied by states and localities on residents? A. The benefits to education, transportation, and welfare programs accrue to states and localities, but these programs are not efficiently administered at the state and local level. B. The benefits to education, transportation, and welfare programs accrue to states and localities, but these programs are most efficiently administered at the national level. C. The benefits to education, transportation, and welfare programs accrue to the entire nation, but these programs are not efficiently administered at the state and local level. D. The benefits to education, transportation, and welfare programs accrue to the entire nation, but these programs are most efficiently administered at the state and local level. What are the advantages and disadvantages of a system of grants in aid? A. Advantage: the national government has a broader mandate than state and local governments; disadvantage: when state and local governments don't have to raise taxes to pay for their spending, they tend to spend too much. B. Advantage: the administration of the programs may become politicized; disadvantage: the national government can identify the features that make these programs have nationwide benefits. C. Advantage: the national government is more efficient than state and local governments; disadvantage: the national government may use the system to control the state and local governments. D. Advantage: the national government can identify the features that make these programs have nationwide benefits; disadvantage: the administration of the programs may become politicized.
D. The benefits to education, transportation, and welfare programs accrue to the entire nation, but these programs are most efficiently administered at the state and local level. D. Advantage: the national government can identify the features that make these programs have nationwide benefits; disadvantage: the administration of the programs may become politicized.
Explain the difference between the overall government budget deficit and the primary deficit. A. The overall budget deficit equals the primary budget deficit minus net interest payments. B. The overall budget deficit equals the primary budget deficit minus government investment spending. C. The overall budget deficit equals the primary budget deficit plus government investment spending. D. The overall budget deficit equals the primary budget deficit plus net interest payments. Explain the difference between the primary deficit and the primary current deficit. A. The primary current budget deficit equals the primary budget deficit minus government investment. B. The primary current budget deficit equals the primary budget deficit plus government investment. C. The primary current budget deficit equals the primary budget deficit plus net interest payments. D. The primary current budget deficit equals the primary budget deficit minus net interest payments. Why are three deficit concepts needed? A. The overall deficit tells how much the government must borrow currently to pay for its outlays; the primary deficit tells whether future revenues are sufficient to pay for future programs; the primary current deficit tells whether current revenues are sufficient to pay for current programs other than government entitlement programs. B. The overall deficit whether future revenues are sufficient to pay for future programs; the primary deficit tells tells how much the government must borrow currently to pay for its outlays; the primary current deficit tells whether current revenues are sufficient to pay for current programs other than government entitlement programs. C. The overall deficit tells how much the government must borrow currently to pay for its outlays; the primary deficit tells whether current revenues are sufficient to pay for current programs; the primary current deficit tells whether current revenues are sufficient to pay for current programs other than government investment. D. The overall deficit whether current revenues are sufficient to pay for current programs; the primary deficit tells tells how much the government must borrow currently to pay for its outlays; the primary current deficit tells whether current revenues are sufficient to pay for current programs other than government investment.
D. The overall budget deficit equals the primary budget deficit plus net interest payments. A. The primary current budget deficit equals the primary budget deficit minus government investment. C. The overall deficit tells how much the government must borrow currently to pay for its outlays; the primary deficit tells whether current revenues are sufficient to pay for current programs; the primary current deficit tells whether current revenues are sufficient to pay for current programs other than government investment.
Which of these statements best characterizes the movement of the U.S. federal government debt-GDP ratio since 1939? A. The debt-GDP ratio fell sharply in World War II, rose from 1946 to the early 1970s, fell from the 1980s to 2000, and has been rising since then. B. The debt-GDP ratio fell sharply in World War II, rose from 1946 to the early 1970s, fell in the 1980s and early 1990s, rose from the mid-1990s to 2000, and has been falling since then. C. The debt-GDP ratio rose sharply in World War II, declined from 1946 to the early 1970s, rose from the 1980s to 2000, and has been declining since then. D. The debt-GDP ratio rose sharply in World War II, declined from 1946 to the early 1970s, rose in the 1980s and early 1990s, declined from the mid-1990s to 2000, and has been rising since then. Which two factors would both cause the debt-GDP ratio to rise quickly? A. a low deficit relative to GDP and a fast rate of GDP growth B. a low deficit relative to GDP and a slow rate of GDP growth C. a high deficit relative to GDP and a slow rate of GDP growth D. a high deficit relative to GDP and a fast rate of GDP growth
D. The debt-GDP ratio rose sharply in World War II, declined from 1946 to the early 1970s, rose in the 1980s and early 1990s, declined from the mid-1990s to 2000, and has been rising since then. C. a high deficit relative to GDP and a slow rate of GDP growth
What are the major components of government outlays? A. government purchases, government consumption, and taxes B. taxes, government consumption, and net interest payments C. government purchases, transfer payments, and government investment D. government purchases, transfer payments, and net interest payments What are the major sources of government revenues? A. personal taxes, direct business taxes, and indirect business taxes B. contributions for social insurance and indirect business taxes C. personal taxes, contributions for social insurance, indirect business taxes, and corporate taxes D. personal taxes, welfare payments, indirect business taxes, and sales taxes How does the composition of the Federal government's outlays and revenues differ from that of state and local governments? A. Most spending on non-defense goods and services is done by state and local governments. B. The federal government spends far less on transfers than on nonmilitary goods and services. C. State and local governments are large payers of net interest, while the federal government is a net recipient of interest payments. D. Most of state and local governments' revenues come from personal taxes and contributions for social insurance, while the federal government relies more heavily on indirect business taxes (sales taxes)
D. government purchases, transfer payments, and net interest payments C. personal taxes, contributions for social insurance, indirect business taxes, and corporate taxes A. Most spending on non-defense goods and services is done by state and local governments.
Which of these represents an example in which there is a difference between the average tax rate and the marginal tax rate on a person's income. A. no tax on income below $15,000, then a tax at 20% on income above $15,000, for a person with an income of $12,000. B. a tax at 20% on all income, for a person with an income of $75,000. C. a tax at 20% on all income up to $100,000, for a person with an income of $47,000. D. no tax on income below $15,000, then a tax at 20% on income above $15,000, for a person with an income of $30,000. For a constant before-tax real wage, which type of tax rate most directly affects how wealthy a person feels? average tax rate Which type of tax rate affects the reward for working an extra hour? marginal tax rate
D. no tax on income below $15,000, then a tax at 20% on income above $15,000, for a person with an income of $30,000.
1.) Under a pay-as-you-go system, as described in the article, the payroll taxes paid by today's workers A. pay interest on loans taken out to pay for workers' future retirement needs. B. are spent on other non-Social Security programs today. C. are set aside for those same workers when they retire. D. pay for the benefits of those receiving benefits today. 2.) Which of the following statements accurately represents dates given in the Application box? A. In 2034, payouts from Social Security as a percentage of GDP are scheduled to increase sharply. B. The Social Security trust fund is scheduled to be exhausted by 2034. C. In 2021, payouts from Social Security are estimated to exceed tax revenues by about 1.3% of GDP. D. In 2016, Social Security is scheduled to start spending more tax revenue than it takes in. 3.) One of the possible fixes for Social Security would be an increase in taxes. Which of the following, based on the Application box, is a downside to this method? A. Increases in taxes distort labor supply decisions. B. Increases in taxes could pay for future recipients but not current recipients. C. Increases in taxes would have to be invested in high-risk choices like the stock market. D. None of the above are mentioned in the Application box as a possible downside.
D. pay for the benefits of those receiving benefits today. B. The Social Security trust fund is scheduled to be exhausted by 2034. A. Increases in taxes distort labor supply decisions.
