Macro - 30.1 Government Spending and Taxation

Which of the following best defines the term balanced budget? A balanced budget is a financial situation in which the federal government spends more money than it receives in taxes in a given year. A balanced budget is a financial policy that decreases the level of aggregate demand. A balanced budget is a tax or spending rule that has the effect of slowing down or speeding up the rate of change in aggregate demand without any additional change in legislation. A balanced budget is a financial situation in which government spending and taxes are equal.

A balanced budget is a financial situation in which government spending and taxes are equal.

Which of the following is the correct definition of a budget surplus? A budget surplus is a financial situation in which the government receives more money in taxes than it spends in a year. A budget surplus is a financial policy that increases the level of aggregate demand. A budget surplus is the budget situation for any given year adjusted for what it would have been if the economy were producing at potential GDP. A budget surplus is a financial policy in which the government passes a new law that explicitly changes overall tax or spending levels with the intent of influencing the level of overall economic activity.

A budget surplus is a financial situation in which the government receives more money in taxes than it spends in a year.

Which statement best defines the term "payroll tax"? A payroll tax is a tax imposed on corporate profits. A payroll tax is a tax paid by only employees for Social Security and Medicare. A payroll tax is a tax that requires the wealthy to pay a smaller share of their income in tax than the poor. A payroll tax is a tax based on the wages earned by an employee.

A payroll tax is a tax based on the wages earned by an employee.

What determines an individual's marginal tax rate? His or her tax bracket His or her investment income His or her ratio of profits to losses for the year His or her percentage of earned weath to inherited wealth

His or her tax bracket

What type of tax is the federal income tax? Regressive Proportional Progressive Flat

Progressive As income rises, the percentage of income paid in income taxes increases.

Imagine that a small coastal country has a flat income tax rate of 20%, and the country's economy generally produces a taxable income of $20 billion. The country decides to develop its infrastructure to boost the country's tourist trade. The infrastructure development is estimated to cost $7 billion. Which of the following will be the outcome of the country's tax revenue and spending on infrastructure improvements? The government runs a budget surplus. The government runs a budget deficit. The government has a balanced budget. The answer cannot be determined from the information given.

The government runs a budget deficit. When a government spends more than it receives in taxes, it runs a budget deficit. Because the country imposes a flat rate of 20% on taxable income, and it generally produces a taxable income of $20 billion, it can expect to generate $4 billion in revenue for the year ($20,000,000,000×0.2). However, it needs to invest in its infrastructure at the cost of $7 billion. So, (total revenues - total spending) = ($4 billion in revenue - $7 billion in spending ) = −$3 billion. A negative balance is a budget deficit, so the country ended the year with a $3 billion budget deficit.

True or false? A progressive tax collects a greater share of income from those with high incomes than from those with low incomes.

True

Which of the following is the largest component of state and local government spending? healthcare Social Security defense education

education While the federal government spends the vast majority of its money on healthcare, Social Security, and defense, state and local governments spend more on education than any other component.

Which of the following best defines the term "estate and gift tax"? An estate and gift tax is a tax imposed on corporate profits. An estate and gift tax is a tax that collects a greater share of income from those with high incomes than from those with low incomes. An estate and gift tax is a tax on a specific good, usually gasoline, tobacco, and alcohol. An estate and gift tax is a tax on people who pass assets to the next generation.

An estate and gift tax is a tax on people who pass assets to the next generation.

How does an excise tax differ from other taxes? An excise tax is paid only by corporations. An excise tax is levied on investment profits rather than wages. An excise tax is levied on goods. An excise tax is based on a fixed percentage of income.

An excise tax is levied on goods. ...such as gasoline, tobacco, or alcohol

Define individual income tax. A tax on goods and services purchased by an individual A tax based on personal property owned by an individual A payroll tax that is partially paid for by an employer A personal income tax based on a persons income or salary.

A personal income tax based on a persons income or salary.

What is a "proportional tax"? A proportional tax is a tax that increases as income increases. A proportional tax is a tax on specific goods, usually gasoline, tobacco, and alcohol. A proportional tax is a tax imposed on corporate profits. A tax that collects a flat percentage of income earned, regardless of the level of income.

A tax that collects a flat percentage of income earned, regardless of the level of income.