Week 6 Microeconomics

An increase in the government's budget surplus will cause the interest rate to: a) either increase or decrease b) decrease c) remain the same d) increase

b) decrease

-A government collects $700 billion annually in tax revenue. Each year its allocates $70 billion to the justice system and $130 billion for its own administrative costs. What percentage of annual tax revenue is allocated to these two categories of government spending? a) 28.57% b) 37.15% c) 17.51% d) 27.58%

a) 28.57%

If the quantity of financial capital supplied is equal to the quantity of financial capital demanded then, the national savings and investment identity is written as: a) S + (M - X) = I + (G - T) b) S + (G - T) = I + (X - M) c) S = (X - M) - (G - T) (M - X) - S = (G + T) -I

a) S + (M - X) = I + (G - T)

If David Ricardo's theory holds completely true, then any change in budget deficits or budget surpluses would be completely offset by which of the following? a) a corresponding change in private saving b) a dependence on inflows of capital c) a change in currency exchange rates d)a sustained patter of trade imbalances

a) a corresponding change in private saving

A ________________ means that government spending and taxes are equal. a) balanced budget b) fiscal budget c) contractionary fiscal policy d) discretionary fiscal policy

a) balanced budget

-A country's economic data indicates that there has been a substantial reduction in the financial capital available to private sector firms. Which of the following most likely had the greatest influence on this economy? a) especially large and sustained government borrowing b) increased borrowing by private firms c) reduction in influx of funds for foreign financial investors d) especially large and sustained household saving

a) especially large and sustained government borrowing

A _____________________ is one economic mechanism by which government borrowing can crowd out private investment. a) higher interest rate b) larger trader surplus c) deficit decrease d) smaller trade surplus

a) higher interest rate

When government policy moves from a budget deficit to a budget surplus and the trade deficit remains constant: a) investment will increase if savings remain constant b) savings will increase if investment remains constant c) investment will decrease if savings remain constant d) savings will decrease, no matter what happens to investment

a) investment will increase if savings remain constant

In the U.S. economy, the offsetting effects of private saving compared to government borrowing are typically noted as being represented by which of the following ratios? a) much less than one-to-one b) slightly more than two-to-one c) much more than two-to-one d) slightly less than one-to-one

a) much less than one-to-one

-If government tax policy requires Jane to pay $25,000 in taxes on annual income of $200,000 and Mary to pay $10,000 in tax on annual income of $100,000, then the tax policy is: a) progressive b) proportional c) regressive d) optional

a) progressive

A _________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes. a) progressive tax b) excise tax c) regressive tax d) proportional tax

a) progressive tax

If government tax policy requires Peter to pay $15,000 in tax on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is: a) regressive b) proportional c) progressive d) optional

a) regressive

A _______________ often results in an outflow of financial capital leaving the domestic economy and being invested in the global economy? a) trade surplus b) fiscal deficit c) trade deficit d) twin surplus

a) trade surplus

During a recession, if a government uses an expansionary fiscal policy to increase GDP, the:

aggregate demand curve will shift to the right

Which of the following is the percentage of annual US government spending allocated to foreign aid? a) 10% b) 1% c) 21% d) 17%

b) 1%

A government annually collects $230 billion in tax revenue and allocates $29 billion to its universal healthcare spending. What percentage of this government's budget is spent on healthcare? a) 21.90% b) 12.60% c) 26.63% d) 16.43%

b) 12.60%

-A government collects $700 billion annually in tax revenue. Each year it allocates $130 billion to interest payments that it must pay on its accumulated debt. What percentage of annual tax revenue is allocated to make these interest payments? a) 17.15% b) 18.57% c) 28.75% c) 27.58%

b) 18.57%

A consensus estimate based on a number of studies suggests that is there is an increase in budget deficits (or a fall in budget surplus) by 1% of GDP, it will most likely cause which of the following? a) long and variable time lags in enacting the fiscal policy b) an increase of 0.5-1.0% in the long-term interest rate c) output above the potential GDP output level d) smaller impact due to temporary fiscal policy

b) an increase of 0.5-1.0% in the long-term interest rate

A __________________________ is created each time the federal government spends more than it collects in taxes in a given year a) regressive tax b) budget deficit c) corporate tax d) budget surplus

b) budget deficit

If the state of Washington's government collects $75 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be a: a) decrease in proportional taxes b) budget surplus c) decrease in payroll tax d) budget deficit

b) budget surplus

Ricardian equivalence means that: a) changes in investment offset any changes in the government deficits b) changes in private savings offset any changes in the government deficit c) changes in exports offset any changes in the government deficit d) changes in imports offset any changes in the government deficit

b) changes in private savings offset any changes in government deficit

-If a country's GDP increases, but its debt also decreases during that year, then the country's debt to GDP ratio for the year will ____________________ in proportion to the magnitude of the changes. a) decrease because its debt decreased b) decrease c) increase because GDP increased d) increase or decrease

b) decrease

-A reduction in government borrowing can: a) crowd out private investment in human capital c) give private investment an opportunity to expand c) increase the interest rate d) decrease the incentive to invest

b) give private investment an opportunity to expand

A government will likely ____________________________ to encourage investment in technology R&D by private firms? a) spend more on R&D in government laboratories b) implement fiscal policy establishing tax incentives c) reduce R&D grants to nonprofit organizations d) reduce R&D grants to universities

b) implement fiscal policy establishing tax incentives

-A moderate increase in a budget deficit that leads to a _____________________ is not necessarily a cause for concern. a) combination of less foreign capital and banks that are bankrupt b) moderate increase in a trade deficit and a moderate appreciation of the exchange rate c) shifts in aggregate demand so far to the right that is causes high inflation d) a series of large budget deficits

b) moderate increase in a trade deficit and a moderate appreciation of the exchange rate

Suppose you are analyzing data for an economy in which Ricardian neutrality holds true. If the budget deficit increases by 50, then: a) investment will decrease by 50 b) private savings will increase by 50 c) investment will increase by 50 d) private savings will decrease by 50

b) private savings will increase by 50

The time lag for monetary policy is typically ___________________ the time lag for fiscal policy. a) the same as b) shorter than c) about the same as d) longer than

b) shorter than

A _____________________ can lead to disruptive economic patterns and heavy strains on a country's banking and financial system. a) prolonged period of budget surplus b) substantiated pattern of large budget deficits c) prolonged period of trade surplus d) sustained pattern of large trade deficits

b) substantiated pattern of large budget deficits

In most developed countries, the government plays a large role in society's investment in human capital though ___________________. a) tax incentives b) the education system c) direct spending d) private sector R&D

b) the education system

-In the national savings and investment identity framework, an inflow of savings from abroad is, by definition, equal to: a) the trade surplus b) the trade deficit c) private sector investment d) domestic household savings

b) the trade deficit

In a market-oriented economy, private firms will undertake most of the _____________________________, and ________________ should seek to avoid a long series of large budget deficits that might crowd out such investment. a. economic growth activities; monetary policy b. investment in physical capital; fiscal policy c. investment in human capital; monetary policy d. economic growth activities; fiscal policy

b. investment in physical capital; fiscal policy

A prolonged period of budget deficits may lead to ___________________. a. lower inflation b. lower economic growth c. outflows of financial capital abroad d. increasing exchange rates

b. lower economic growth

________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation. a) Standardized employment budgets b) Budget expenditures c) Automatic stabilizers d) Discretionary fiscal policies

c) Automatic stabilizers

-When governments are borrowers in financial capital markets, which of the following is least likely to be a possible source of the funds from a macroeconomic point of view? a) increase in household savings c) central bank prints more money c) foreign financial investors c) decrease in borrowing by private firms

c) central bank prints more money

When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting: a) progressive fiscal policy b) fiscal policy c) discretionary fiscal policy d) regressive fiscal policy

c) discretionary fiscal policy

-Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing? a) economic policies b) monetary policies c) fiscal policies d) financial policies

c) fiscal policies

-By June, 2010, the U.S. government owned $13.6 trillion dollars ________________ that, over time, has remained unpaid. a) from decreases in excise tax b) from decreases in income tax c) in accumulated government debt d) from decreases in corporate tax

c) in accumulated government debt

Which of the following is least likely to be the result of economic disruptive patterns caused by a prolonged period of government budget deficits? a) strains on a country's financial system b) high inflation c) increasing exchange rates d) substantial inflows of foreign financial capital

c) increasing exchange rates

-Currently, the US government accumulated debt to GDP ratio: a) is higher than it has ever been b) is lower than it has ever been c) is lower than its historical high point d) has remained relatively steady for the past decade

c) is lower than its historical high point

-The U.S. economy has two main sources for financial capital; ____________________ and __________________. a) private sector investment; government borrowing b) private sector investment inflows of foreign financial investment from abroad c) private savings from U.S. households and firms; inflows of foreign financial investment d) private savings from U.S. households and firms; government borrowing

c) private savings from U.S. households an firms; government borrowing

A ____________________________ is calculates as a flat percentage earned, regardless of level of income. a) estate and gift tax b) regressive tax c) proportional tax d) progressive tax

c) proportional tax

-If the economy is producing less than its potential GDP, ________________________________ will show a larger deficit than the actual budget. a) expansionary fiscal policy b) discretionary fiscal policy c) the standardized employment budget d) the automatic stabilizers

c) the standardized employment budget

When inflation begins to climb to unacceptable levels in the economy, the government should: a) use expansionary fiscal policy to shift aggregate demand to the left b) use expansionary fiscal policy to shift aggregate demand to the right c) use contractionary fiscal policy to shift aggregate demand to the left d) use contractionary fiscal policy to shift aggregate demand to the right

c) use contractionary fiscal policy to shift aggregate demand to the left

When a government records a budget surplus, the national savings and investment identity is written as: a. S = I + (G - T) + (X - M) b. S + (T - G) = 1 + (X - M) c. S + (M - X) + (T - G) = I d. S - (G - T) = I - (X - M)

c. S + (M - X) + (T - G) = I

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

corporate profits

Which of the following is least likely to benefit the civilian economy? a) direct private sector R&D spending b) tax policy promoting civilian R&D spending c) R&D carried out in government laboratories d) R&D aimed at producing new weapons

d) R&D aimed at producing new weapons

What do goods like gasoline, tobacco, and alcohol typically share in common? a) They are all subject to government fiscal taxes b) A progressive tax is imposed on each of them c) A regressive tax is imposed on each of them d) They are all subject to government excise taxes

d) They are all subject to government excise taxes

If a government's budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, causing a threat of an inflationary increase in price levels, then the central bank may react with: a) a loose monetary policy b) an expansionary monetary policy c) a discretionary monetary policy d) a contractionary monetary policy

d) a contractionary monetary policy

The federal government levies ___________ on people who pass assets _______________, either after death or during life. a) an excise tax; to their children b) a progressive tax; to non-family members c) a regressive tax; to non-family members d) an estate and gift tax; to the next generation

d) an estate and gift tax; to the next generation

An increase in government borrowing can: a) cause a substantial decrease in interest rates b) increase the incentive to invest in technology c) allow private investment to expand d) crowd out private investment in physical capital

d) crowd out private investment in physical capital

Because of the difference between the discipline imposed by market competition and the discipline imposed by political decisions, which of the following is most likely? a) government budgets will exactly shadow the rate of private investment b) tax budgets increase without a corresponding drop in private investment c) reduced government borrowing to avoid crowding out private investment d) difficulty managing public investment so it's done in a cost effective way

d) difficulty managing public investment so it's done in a cost effective way

Which of the following is not a consequence of an increase in the government's budget deficit? a) investment falls while holding everything else constant b) imports increase while exports and all other variables are held constant c) private savings increases while holding everything else constant d) exports increase while imports and all other variables are held constant

d) exports increase while imports and all other variables are held constant

From a macroeconomic point of view, which of the following is a source of demand for financial capital? a) foreign financial investment b) savings by households and firms c) domestic household private saving government borrowing

d) government borrowing

-If a country's GDP increases, but its debt decreases during that year, then the country's debt to GDP ratio for the year will ________________ in proportion to the magnitude of the changes. a) decrease because its debt decreased b) decrease c) increase because GDP increased d) increase or decrease

d) increase or decrease

-An additional investment in human capital, especially for the low-income nations of the world, will likely directly increase which of the following? a) increase levels of R&D spending b) consumer orientated spin-offs c) highly qualified teachers d) productivity and economic growth

d) productivity and economic growth

If South Dakota's governor reports a budget surplus in 2011, that state government likely: a) increased the proportional tax level b) equalized spending and taxes in that year c) increased the corporate income tax rate d) received more in taxes than it spent in that year

d) received more in taxes than it spent in that year

When a business firm makes an investment in physical capital, what is that investment subject to? a) political orientated incentives b) state and local government incentives c) economic output and productivity d) the discipline of the market

d) the discipline of the market

A government began 2013 with a budget deficit and a trade deficit and a trade deficit. During the year, the government changed its policy and is now running a budget surplus. If all other factors hold constant, this change in policy will cause: a) the exchange rate to decrease and the trade deficit to increase b) the exchange rate to increase and the trade deficit to decrease c) the exchange rate and the trade deficit to increase d) the exchange rate and the trade deficit to decrease

d) the exchange rate and the trade deficit to decrease

When increasing oil prices cause aggregate supply to shift to the left, then: a) unemployment increases and inflation decreases b) unemployment and inflation decrease c) unemployment decreases and inflation increases d) unemployment and inflation increase

d) unemployment and inflation increase

If the U.S. economy is producing at a level that is substantially less than potential GDP and the government's budget deficits are increasing aggregate demand, then ____________________________ is not much of a danger. a. a tight monetary policy b. international financial investment c. the central bank's contractionary monetary policy d. an inflationary increase in the price level

d. an inflationary increase in the price level

When governments are borrowers in financial capital markets, which of the following is least likely to be a possible source of the funds from a macroeconomic point of view? a. decrease in borrowing by private firms b. increase in household savings c. foreign financial investors d. central bank prints more money

d. central bank prints more money

If the government initiates an expansionary monetary policy at the same time that its budget deficit decreases, then the interest rate will __________________________. a) increase b) either increase or decrease c) remain unchanged d) decrease

decrease

The current level of US government accumulated debt, when measured in nominal dollars:

is higher than it has ever been