final exam econ

A tax is regressive if the: A. Average tax rate decreases as income increases B. Marginal tax rate increases as income increases C. Dollar amount paid in taxes increases as income increases D. Tax hurts the rich more than the poor

A. Average tax rate decreases as income increases

The group of three economists appointed by the president to provide fiscal policy recommendations is the: A. Council of Economic Advisers. B. Joint Economic Committee. C. Bureau of Economic Analysis. D. Federal Reserve Board of Governors.

A. Council of Economic Advisers.

A media report states, "During the past 12 months unemployment has been under 5% and the GDP price index has increased 2%. Total production of goods and services is projected to be 5% higher the next twelve months." Which of the following policies would be most appropriate for short run stabilization purposes? A. Relying on automatic stabilizers B. increase government spending C. passing new corporate tax incentives to encourage investment D. increasing the money supply

A. Relying on automatic stabilizers

Regulatory capture is said to have occurred when which of the following is true? A. Rules and enforcement in an industry are heavily influenced by the industry being regulated. B. One firm controls an entire market, having captured customers away from other firms. C. Government imposes excessive regulations in an industry, resulting in inefficiencies. D. Consumers make all the rules for an industry, forcing firms into inefficient production methods.

A. Rules and enforcement in an industry are heavily influenced by the industry being regulated.

Which of the following is true in the short run when comparing increase in government spending to an increase in private investment spending? A. They will both increase aggregate demand B. Government spending will increase aggregate demand; private investment spending will decrease aggregate demand C. Government spending is inflationary; private investment spending is not D. Government spending must equal taxes: private investment spending must equal saving.

A. They will both increase aggregate demand

The basic money supply (M1) in the US consists primarily of: A. currency and checkable deposits B. currency and government bonds C. currency, checkable deposits, and government bonds D. currency, checkable deposits, and credit card accounts

A. currency and checkable deposits

Discretionary fiscal policy will stabilize the economy most when: A. deficits are incurred during recessions and surpluses during inflations. B. the budget is balanced each year. C. deficits are incurred during inflations and surpluses during recessions. D. budget surpluses are continuously incurred.

A. deficits are incurred during recessions and surpluses during inflations.

Fiscal policy refers to the: A. deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level. B. deliberate changes in government spending and taxes to achieve greater equality in the distribution of income. C. altering of the interest rate to change aggregate demand. D. fact that equal increases in government spending and taxation will be contractionary.

A. deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

In a certain year, the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price-level stability under these conditions, the government should: A. increase tax rates and/or reduce government spending. B. discourage personal saving by reducing the interest rate on government bonds. C. increase government expenditures. D. encourage private investment by reducing corporate income taxes.

A. increase tax rates and/or reduce government spending.

Which of the following actions by a nation's central bank would be most effective in reducing inflation? A. selling government bonds on the open market B. lowering margin requirements on purchases of financial turkeys C. reducing the rate of interest it charges on loans to commercial banks D. reducing reserve requirement on deposits held by commercial banks

A. selling government bonds on the open market

An economist who favors smaller government would recommend: A. tax cuts during recession and reductions in government spending during inflation. B. tax increases during recession and tax cuts during inflation. C. tax cuts during recession and tax increases during inflation. D. increases in government spending during recession and tax increases during inflation.

A. tax cuts during recession and reductions in government spending during inflation.

A progressive tax is such that: A. tax rates are higher the greater one's income. B. the same tax rate applies to all income receivers, so that the rich pay absolutely more taxes than the poor. C. entrepreneurial income is exempt from taxation. D. the revenues it yields are spent on transfer payments.

A. tax rates are higher the greater one's income.

Regulatory capture often occurs because of which of the following? A. Government officials want stronger control over industry regulation. B. Nearly everyone with expertise works in the regulated industry. C. Patent law allows firms to gain monopoly power easily and therefore control a market. D. Consumer groups are effective at lobbying the government for industry regulation.

B. Nearly everyone with expertise works in the regulated industry.

Sales taxes are: A. Progressive taxes B. Regressive taxes C. Not considered a "tax" D. Exactly the same as income taxes

B. Regressive taxes

An appropriate fiscal policy for a severe recession is: A. a decrease in government spending. B. a decrease in tax rates. C. appreciation of the dollar. D. an increase in interest rates.

B. a decrease in tax rates.

The effect of a government surplus on the equilibrium level of GDP is substantially the same as: A. a decrease in imports. B. an increase in saving. C. an increase in consumption. D. an increase in investment.

B. an increase in saving.

Commercial banks create money when they: A. raise their interest rates B. create checkable deposits in exchange for IOUs C. purchase government securities from the Federal Reserve D. sell government securities to households

B. create checkable deposits in exchange for IOUs

Countercyclical discretionary fiscal policy calls for: A. surpluses during recessions and deficits during periods of demand-pull inflation. B. deficits during recessions and surpluses during periods of demand-pull inflation. C. surpluses during both recessions and periods of demand-pull inflation. D. deficits during both recessions and periods of demand-pull inflation.

B. deficits during recessions and surpluses during periods of demand-pull inflation.

Deregulation: A. tends to improve outcomes in industries generating substantial negative externalities. B. eliminates regulatory capture and can improve outcomes by increasing competition. C. is most appropriate to undertake by government agencies responsible for human safety, financial regulation, and environmental protection. D. always generates greater economic efficiency.

B. eliminates regulatory capture and can improve outcomes by increasing competition.

Which of the following actions by the Federal Reserve would have similar effects on the US money supply? A. decreasing the reserve ratio and selling government securities B. increasing the reserve ratio and selling government securities C. decreasing the discount rate and selling government securities D. increasing the discount rate and buying government securities

B. increasing the reserve ratio and selling government securities

A monetary policy will increase GDP in the short run if: A. interest rates increase, encouraging more savings B. interest rates decrease, encouraging more investment C. personal savings increase to finance present consumption. D. personal savings decrease to finance future consumption.

B. interest rates decrease, encouraging more investment

27. Public choice economists contend public bureaucracies are inefficient primarily because: A. the value of public goods is more easily measured than is the value of private goods. B. of the absence of competitive market pressures. C. public sector workers are more security-conscious than are private sector workers. D. relatively low pay in government attracts workers of lesser quality.

B. of the absence of competitive market pressures.

The pursuit through government of a "transfer of wealth" at someone else's expense refers to: A. logrolling. B. rent-seeking behavior. C. the paradox of voting. D. the median-voter model.

B. rent-seeking behavior.

The average tax rate is: A. change in taxes/change in taxable income. B. total taxes/total taxable income. C. the sum of the marginal tax rate and the rate of transfer payments. D. the tax on incremental income less the tax on total income.

B. total taxes/total taxable income.

Chronic budget deficits can be attributed to: A. unfunded liabilities. B. voters wanting government programs but not wanting to pay taxes. C. inappropriate monetary policy. D. state budget laws.

B. voters wanting government programs but not wanting to pay taxes.

Which of the following is considered a potential solution to some regulatory capture? A. Bringing industry experts into the regulatory process. B. Creating a standard set of regulations for all industries. C. Deregulation of the industry. D. Government subsidies for firms in the industry.

C. Deregulation of the industry.

How will the market interest rates and bond prices most likely change if the Federal Reserve decides to make a small, one time increase in the money supply? Interest rates Bond prices A. Interest rates increase, Bond prices increase B. Interest rates increase , Bond prices decrease C. Interest rates decrease, Bond prices increase D. Interest rates decrease, Bond prices decrease

C. Interest rates decrease, Bond prices increase

In the short run, how will an increase in government spending thereby increasing aggregate demand most likely affect real GDP and the overall price level? REAL GDP Price Level A. REAL GDP decrease, Price Level decrease B REAL GDP increase, Price Level decrease C. REAL GDP increase, Price Level increase D. REAL GDP decrease, Price Level increase

C. REAL GDP increase, Price Level increase

Which of the following best explains why a $7 billion tax cut can lead to a $9 billion increase in consumer spending in the short run? A. tax cuts reduce government spending, which encourages consumer spending B. Tax cuts reduce interest rates, which stimulates consumer spending and borrowing C. Tax cuts increase disposable income, which leads to higher national income and additional consumer spending. D. Tax cuts increase government transfer payments, which leads to higher national income and additional consumer spending.

C. Tax cuts increase disposable income, which leads to higher national income and additional consumer spending.

8. Which of the following is a source of government failure? A. The invisible hand. B. The lack of bureaucracy in government. C. The enormous size and scope of government. D. Excessive flexibility.

C. The enormous size and scope of government.

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward: A. an equality of tax receipts and government expenditures. B. an excess of tax receipts over government expenditures. C. an excess of government expenditures over tax receipts. D. a reduction of subsidies and transfer payments and an increase in tax rates.

C. an excess of government expenditures over tax receipts.

Which of the following would most likely if the federal government increased spending without increasing tax revenues during a period of full employment? A. a recession B. a decrease in interest rates C. an increase in the price level D. decrease in the national debt

C. an increase in the price level

The marginal tax rate is: A. the difference between the total tax rate and the average tax rate. B. the percentage of total income paid as taxes. C. change in taxes/change in taxable income. D. total taxes/total taxable income.

C. change in taxes/change in taxable income.

Discretionary fiscal policy refers to the: A. automatic changes in taxes and government spending that occurs as GDP changes B. deliberate changes in government spending and taxes to achieve greater equallityin the distribution of income. C. deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level D. central bank changing the money supply and the interest rates to stabilize the economy

C. deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level

If Congress adjusted the US personal income tax system to make it more progressive, thus reducing the economy's marginal propensity to consume. The A. economy would become more inflation prone B. stability of the economy would not be affected C. economy would become more stable D. economy would become less stable

C. economy would become more stable

Government officials tend to make: A. better economic decisions than private individuals because of the wealth of information at their disposal. B. better economic decisions than private individuals because of the efficient processes and flexibility built into the government bureaucracy. C. inefficient choices because they lack the information necessary to accurately weigh marginal benefits and marginal costs. D. inefficient choices because the invisible hand directs them away from the resource allocation where marginal benefits equal marginal costs.

C. inefficient choices because they lack the information necessary to accurately weigh marginal benefits and marginal costs.

Discretionary fiscal policy refers to: A. any change in government spending or taxes that destabilizes the economy. B. the authority that the president has to change personal income tax rates. C. intentional changes in taxes and government expenditures made by Congress to stabilize the economy. D. the changes in taxes and transfers that occur as GDP changes.

C. intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

Discretionary fiscal policy is so named because it: A. is undertaken at the option of the nation's central bank. B. occurs automatically as the nation's level of GDP changes. C. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. D. is invoked secretly by the Council of Economic Advisers.

C. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress.

Contractionary fiscal policy is so named because it: A. involves a contraction of the nation's money supply. B. necessarily reduces the size of government. C. is aimed at reducing aggregate demand and thus achieving price stability. D. is expressly designed to expand real GDP.

C. is aimed at reducing aggregate demand and thus achieving price stability.

An income tax is progressive if the: A. absolute amount paid as taxes varies directly with income. B. percentage of income paid as taxes is the same regardless of the size of income. C. percentage of income paid as taxes increases as income increases. D. tax rate varies inversely with income.

C. percentage of income paid as taxes increases as income increases.

The crowding out effect resulting from increased government budget deficit financed through borrowing suggests that: A. imports will decrease more than exports B. interest rates will fall C. private investment spending for capital goods will decrease D. tax incentives will be paid primarily out of saving

C. private investment spending for capital goods will decrease

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions, the government should: A. encourage personal saving by increasing the interest rate on government bonds. B. decrease government expenditures. C. reduce tax rates and/or increase government spending. D. discourage private investment by increasing corporate income taxes.

C. reduce tax rates and/or increase government spending.

Economists call the pursuit of a transfer of wealth through government at someone else's expense: A. the paradox of voting. B. adverse selection. C. rent-seeking behavior. D. the benefits-received principle.

C. rent-seeking behavior.

The average tax rate is: A. equal to the marginal tax rate if the tax is progressive. B. the total tax rate minus the marginal tax rate. C. the ratio of total taxes paid to total taxable income. D. the tax rate that applies to incremental dollars of income.

C. the ratio of total taxes paid to total taxable income.

Which of the following would be the best example of regulatory capture? A. Starbucks buys up all the available supplies of coffee beans. B. Nike executives influence the rules for track and field events. C. Federal law makers write and pass legislation that protects domestic companies from foreign competition. D. Executives from the Ford, General Motors, and Chrysler companies write the rules regulating automobile safety and fuel requirements.

D. Executives from the Ford, General Motors, and Chrysler companies write the rules regulating automobile safety and fuel requirements.

Assume the economy is at full employment and is experiencing rapid inflation. In this situation proper and well-coordinated fiscal and monetary policies would involve which of the following? [assume the dollar values for both policy changes are the same amount] A. FISCAL POLICY incur a federal budget deficit, MONETARY POLICY buy government bonds B. FISCAL POLICY incur a federal budget surplus, MONETARY POLICY buy government bonds C. FISCAL POLICY incur a federal budget deficit, MONETARY POLICY sell government bonds D. FISCAL POLICY incur a federal budget surplus, MONETARY POLICY sell government bonds

D. FISCAL POLICY incur a federal budget surplus, MONETARY POLICY sell government bonds

Which of the following impacts would economists expect to result from chronic budget deficits? A. Greater economic efficiency resulting from the abundance of public goods produced. B. Permanently high levels of output and continued economic growth. C. Greater political control over monetary policy. D. Government control of an inefficiently large share of the economy's resources.

D. Government control of an inefficiently large share of the economy's resources.

Which of the following is a key difference between the economic activities of government and those of private firms? A. Private firms face the constraint of scarcity; government does not. B. Government focuses primarily on equity; private firms focus only on efficiency. C. Private economic activities create externalities; government activities do not. D. Government has the legal right to force people to do things; private firms do not.

D. Government has the legal right to force people to do things; private firms do not.

Which of the following normally a progressive tax? A. Sales tax B. Social security tax C. Cigarette tax D. Income tax

D. Income tax

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? A. A congressional proposal to incur a federal surplus to be used for the retirement of public debt. B. Reductions in agricultural subsidies and veterans' benefits. C. Postponement of a highway construction program. D. Reductions in federal tax rates on personal and corporate income.

D. Reductions in federal tax rates on personal and corporate income.

Which one of the following topics would be of the most interest to a public choice economist? A. The theory of comparative advantage. B. The law of increasing opportunity cost. C. Inflation and unemployment. D. Rent-seeking behavior.

D. Rent-seeking behavior.

Which of the following would best explain why regulatory capture is a problem? A. The regulations implemented tend to reduce the profitability of the regulated industry and reduce global competitiveness. B. Regulatory capture unduly increases the size and power of government, increasing costs for taxpayers. C. Individuals implementing the regulations lack expertise about the industry and therefore make poor regulatory choices. D. The regulations implemented serve the private interests of the regulated industry, rather than addressing social interests such as consumer safety and environmental protection.

D. The regulations implemented serve the private interests of the regulated industry, rather than addressing social interests such as consumer safety and environmental protection.

An appropriate fiscal policy for severe demand-pull inflation is: A. an increase in government spending. B. depreciation of the dollar. C. a reduction in interest rates. D. a tax rate increase.

D. a tax rate increase.

The political tendency to favor spending priorities with immediate benefits but deferred costs results in: A. chronic budget deficits. B. misdirection of stabilization policy. C. unfunded liabilities. D. all of these.

D. all of these.

An economist who favored expanded government would recommend: A. tax cuts during recession and reductions in government spending during inflation. B. tax increases during recession and tax cuts during inflation. C. tax cuts during recession and tax increases during inflation. D. increases in government spending during recession and tax increases during inflation.

D. increases in government spending during recession and tax increases during inflation.

Expansionary fiscal policy is so named because it: A. involves an expansion of the nation's money supply. B. necessarily expands the size of government. C. is aimed at achieving greater price stability. D. is designed to expand real GDP.

D. is designed to expand real GDP.

A special-interest issue is one whose passage yields: A. private benefits equal to external benefits. B. large external benefits compared to private benefits. C. small economic losses to a small number of people and large economic losses to a large number of people. D. large economic gains to a small number of people and small economic losses to a large number of people.

D. large economic gains to a small number of people and small economic losses to a large number of people.

Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of: A. moral hazard. B. the principal-agent problem. C. logrolling. D. rent-seeking behavior.

D. rent-seeking behavior.

37. Currently (2013) the marginal tax rates of the federal personal income tax: A. are less than corresponding average tax rates. B. rise from 0 to 99 percent. C. fall from 20 to 10 percent. D. rise from 10 to 39.6 percent.

D. rise from 10 to 39.6 percent.

The marginal tax rate is: A. less than the average tax rate when a tax is progressive. B. calculated by dividing total taxes paid by one's total taxable income. C. the percentage of one's total income that is paid in taxes. D. the percentage of an increment of income that is paid in taxes.

D. the percentage of an increment of income that is paid in taxes.