WEEK 10 STUDY PLAN

What are some of the unexpected events in an economy that can lead to a national surplus rather than a deficit?

An economy has unexpected growth that increases national payroll tax revenues.

________ are a form of tax or spending rules that can affect aggregate demand in the economy without any changes in legislation.

Automatic stabilizers

Which of the following are NOT major components of US federal government spending?

Community and regional development

Which of the following does NOT affect aggregate demand?

Crop failures due to weather events.

The country of Latinivia has a goal to increase and foster economic activity and therefore increase Aggregate Demand. What actions would it take to achieve this goal?

Fund new infrastructure projects by passing a new spending bill.

Fiscal policy is illustrated by which of the following?

Government expenditure changes.

Assuming the government of country Balistan has a balanced budget requirement and collects $100 million more in taxes than expected in 2016. As a result, the government would have to

Increase spending by $100 million.

Expansionary fiscal policy might include which of the following?

Reduction of tax rates or increased government spending.

Which of the following example(s) describe a regressive tax?

Social Security tax rate of 6.2% on earned income below $117,000 and 0% on income earned above $117,000.

According to the Laffer curve, as tax rates rise

Tax revenues first increase but eventually fall as tax rates reach certain levels.

According to the Keynesian approach to fiscal policy

The crowding out effect is quite limited as the demand for private loans is low in times of recessions.

Assume that the government of Ostentia for its current budget plans to collect taxes in the amount of $10 billion and to spend $9 billion. A civil war breaks out and the government spends an additional $1 billion and tax collection is down by $1 billion. What is the result?

The expected budget surplus turns in to a $1 billion deficit.

Assuming that the income tax is the only source of revenue for the government, if tax revenues are $50 billion and government spending totals $70 billion, which of the following is true of the government's budget?

The government has a budget deficit of $20 billion.

How would a balanced budget amendment affect a decision by Congress to grant a tax cut during a recession?

The government would have to make up the revenue either by raising taxes in a different area or cutting spending.

Which of the following statements about government spending is true?

The shares of social security and health care spending in GDP have grown steadily since the 1960's.

What do goods like gasoline, tobacco, and alcohol typically have in common?

They are all subject to government excise taxes.

How would a balanced budget amendment change the effect of automatic stabilizer programs?

They would lose flexibility because spending could not increase unless funds were there.

Tom earns $33,000 per year. The income tax rate on incomes below $20,000 is 10 percent. The rate on income between $20,001 and $35,000 is 15 percent. Which of the following is true?

Tom's marginal income tax rate is 15 percent.

Which number is higher?

U.S. federal debt.

When does a budget surplus occur?

When government tax revenues exceed government spending.

In 2016, the federal government spent $200 billion but collected $180 billion in taxes, therefore in 2016, the government accumulated

a budget deficit of $20 billion.

Which of the following can the government use as a tool of fiscal policy if it wants to increase the level of real GDP in the economy?

a cut in taxes.

If a state with a balanced budget law runs a budget surplus, its options include

a spending increase.

A ________ means that government spending and tax revenues are equal.

balanced budget

A ________ is created each time the federal government spends more than it collects in taxes in a given year.

budget deficit

The smaller share of federal tax revenues comes from

corporate income taxes.

An increase in government borrowing can

crowd out private investment.

An increase in government spending may result in which of the following?

crowding out of private investment.

An increase in taxes through a new budget would

decrease aggregate demand and reduce the Gross Domestic Product at the new equilibrium.

Assume the government has a budget deficit and that the economy is experiencing a recession. Tax revenues collected by the government are likely to ________, which would ________ the budget deficit.

decrease; increase

An expansionary fiscal policy can increase the level of aggregate demand by all of the following EXCEPT

decreasing government purchases.

When the government passes a new law that explicitly increases overall tax rates and reduces spending levels, it is enacting:

discretionary and contractionary

If a government reduces tax rates in order to increase the level of aggregate demand, what type of fiscal policy is being used?

discretionary and expansionary

State and local government spending goes predominantly towards

education

When the government increases its spending, it is conducting

fiscal policy.

A major concern of fiscal policy is

how federal government taxing and spending affects aggregate demand.

Sales taxes are

imposed as a percentage of the value of the purchase.

Property taxes are

imposed based on ownership of assets such as real estate.

Assume the government has a balanced budget and that the economy is experiencing a period of growth higher than predicted. The tax revenue collected by the government is likely to ________, which would lead to a ________.

increase; budget surplus

When ________ contractionary fiscal policy is the recommended choice.

inflation has reached harmful levels

If an economy was in a recession and the government decided to use a supply side policy to address it, the government would most likely

institute cutting taxes rather than increasing spending by the government.

Which of the following is likely to lead to economic growth in the long term?

new highways to serve new neighborhoods and business parks

A supply side economist would advocate reducing income tax rates to encourage

people to work more.

In 2010, Microsoft will pay corporate income tax to the federal government based on the company's ________.

profits

An argument to promote research and development in technology is that it will

promote economic growth in the long run.

Ari's income and federal income tax contributions are in the table below. What is the federal income tax in Ari's country? Taxable IncomeFederal Income Tax Payment2016$80,000$10,0002017$94,000$11,750

proportional

Former President Ronald Reagan was a supporter of supply side economics. Supply side economists believe that

reducing tax rates increases aggregate supply.

A decrease in taxes will shift the AD curve to the ________, while a decrease in government expenditure will shift the curve to the ________.

right; left

The crowding out concept suggests that, holding all else constant, when government borrows to pay for budget deficits, interest rates ________ borrowing and spending by businesses and households.

rise and discourage

Besides education, what other areas within its borders is a state responsible for funding?

roads, parks, police and fire protection, libraries

Most spending on K-12, college, and universities is provided by:

state and local spending.

The Congress of the country of Delta is debating budget issues and decides to cancel $5 billion worth of tax cuts in order to balance the budget. An argument against a balanced budget rule would be

that benefits from the tax cut were forgone.

An increase in corporate income tax from 20% to 24% would have the most impact on

the federal government budget.

The Joint Economic Committee of the U.S. Congress recommends avoiding budget deficits to avoid crowding out private investment. The council appears to follow

the neoclassical approach to fiscal policy.

If the economy is producing less than its potential GDP, ________ will show a smaller deficit than the actual deficit.

the standardized (or full) employment deficit

If the economy is producing more than its potential GDP, ________ will be larger than the actual budget deficit.

the standardized (or full) employment deficit

During a recession, automatic stabilizers include

unemployment benefits.

When inflation begins to climb to unacceptable levels in the economy, the government should

use contractionary fiscal policy to reduce aggregate demand.