44. Suppose the real interest rate in the economy is 3% and the nominal interest rate is 6%, what is the current inflation
rate?
a.
18%
b.
9%
c.
2%
d.
3%
e.
2.5%
d
MACR.BOYE.16.56 – ch. 11, 2
Fiscal Policy in the United States
Knowledge
45. If the government sells U.S. Treasury bonds to finance its budget deficit, one would expect:
a.
interest rates to rise.
b.
domestic investment to rise.
c.
tax rates to fall.
d.
inflation to rise.
e.
interest rates to fall.
Moderate
MACR.BOYE.16.57 – ch. 11, 3
United States – The Role of Government
Fiscal Policy in the United States
Application
46. A U.S. federal budget deficit that raises real interest rates is most likely to:
a.
lead to a depreciation of the dollar in the foreign exchange market.
b.
encourage foreign investment in U.S. securities.
c.
lead to an increase in exports.
d.
lead to an appreciation of other currencies relative to the U.S. dollar.
e.
discourage imports of foreign goods.
b
Moderate
United States – The Role of Government
Knowledge
Knowledge
47. Assume that European interest rates fall as a result of decreased deficit spending by the governments of the European
Union. We would expect all of the following, except:
a.
a depreciation of the euro with respect to the U.S. dollar.
b.
increased European demand for American government securities.
c.
a higher level of U.S. imports from Europe.
d.
higher U.S. net exports to Europe.
e.
higher French exports to the United States.
MACR.BOYE.16.57 – ch. 11, 3
Fiscal Policy in the United States
48. National debt can be defined as:
a.
b.
c.
d.
e.
MACR.BOYE.16.57 – ch. 11, 3
United States – The Role of Government
Fiscal Policy in the United States
49. Which of the following is true of U.S. national debt between 1958 and 2010?
a.
Total debt in the U.S. crossed $104 trillion in 2009.
b.
Debt as a percentage of GDP was the highest in the year 1978.
c.
Net interest payable by the U.S. government was the highest in the year 1990.
d.
Interest payment as a percentage of total government spending was the highest in 2009.
e.
Net interest payable by the U.S. government crossed $250 billion in 2009.
MACR.BOYE.16.57 – ch. 11, 3
50. If all U.S. government bonds are held by U.S. citizens, then:
a.
the bondholders will not earn interest on the bonds.
b.
there is no tax liability for funding the U.S. government’s debt.
c.
there is no net change in national wealth when the national debt changes.
d.
the tax liability for funding the debt is not offset by the interest earnings of bondholders.
e.
the tax rates are not increased to repay the outstanding debts.
51. Ceteris paribus, the greater the foreign holdings of the U.S. treasury securities:
a.
the lower the value of the U.S. dollar in the foreign exchange market.
b.
the higher the interest rate in the U.S.
c.
the greater the level of U.S. imports.
d.
the lower the wealth of the U.S. citizens.
e.
the lower the tax rate in the U.S. economy.
MACR.BOYE.16.57 – ch. 11, 3
United States – The Role of Government
Fiscal Policy in the United States
52. Which of the following is true about automatic stabilizers?
a.
Automatic stabilizers are a part of discretionary fiscal policy.
b.
The federal funds rate is an example of an automatic stabilizer.
c.
An automatic stabilizer is any program that responds to fluctuations in the business cycle in a way that
moderates the effects of those fluctuations.
d.
Any kind of trade policy adopted by the government will be considered as an automatic stabilizer.
e.
When income rises, automatic stabilizers increase/boost spending.
MACR.BOYE.16.57 – ch. 11, 3
United States – The Role of Government
Fiscal Policy in the United States
53. Which of the following constitutes a transfer payment?
a.
Income taxes
b.
Corporate salaries
c.
Fiscal spending
d.
Dividend payments
MACR.BOYE.16.57 – ch. 11, 3
Fiscal Policy in the United States
e.
Welfare benefits
54. A major benefit of automatic stabilizers is that they:
a.
guarantee a balanced budget over the course of the business cycle.
b.
have a tendency to reduce the national debt.
c.
help increase recessionary gaps in the economy.
d.
moderate the effect of fluctuations in the business cycle.
e.
require legislative review by Congress before they can be implemented.
MACR.BOYE.16.57 – ch. 11, 3
United States – The Role of Government
Fiscal Policy in the United States
55. Under a progressive tax system:
a.
the average tax rate increases with increases in real GDP.
b.
the average tax rate remains constant with changes in real GDP.
c.
the average tax rate falls with increases in real GDP.
d.
government tax receipts increase when the economy is in a recession.
e.
government tax receipts decrease when the economy is expanding.
MACR.BOYE.16.57 – ch. 11, 3
Fiscal Policy in the United States
56. Assume an economy has automatic stabilizers in place that include a progressive tax structure and a transfer payment
system. Then in a period of high economic growth and high inflation, we would expect:
a.
tax revenues to fall and unemployment compensation to rise.
b.
average tax rates and welfare payments to decline.
c.
the national debt to become larger.
d.
average tax rates and government revenues to rise.
e.
government spending on social security benefits to rise.
MACR.BOYE.16.57 – ch. 11, 3
Fiscal Policy in the United States
57. Which of the following does not qualify as an automatic stabilizer in the economy?
a.
Lump-sum taxes
b.
Food stamps
c.
Welfare payments
d.
Progressive income taxes
e.
Unemployment compensation
Easy
MACR.BOYE.16.57 – ch. 11, 3
Fiscal Policy in the United States
Knowledge
58. Under a _____ structure, the marginal income tax rate rises and the average tax rate decreases as personal income
falls.
a.
value added tax
b.
sin tax
c.
progressive tax
d.
regressive tax
e.
lumpsum tax
Easy
MACR.BOYE.16.57 – ch. 11, 3
Fiscal Policy in the United States
Knowledge
59. Suppose the marginal tax rate is 37 percent for an income level of $50,000 and 39 percent for an $80,000 income. This
implies that the underlying tax structure is _____ in nature.
a.
fixed
b.
progressive
c.
regressive
d.
lump-sum
e.
proportional
b
Moderate
MACR.BOYE.16.57 – ch. 11, 3
MACR.BOYE.16.57 – ch. 11, 3
Fiscal Policy in the United States
Comprehension
60. If Joe earns $80,000 per year and pays $20,000 in taxes, while Moe earns $100,000 and pays $22,000 in taxes, their
tax system would best be described as:
a.
progressive.
b.
proportional.
c.
regressive.
d.
discretionary.
e.
lump-sum.
Moderate
MACR.BOYE.16.57 – ch. 11, 3
United States – The Role of Government
Fiscal Policy in the United States
Knowledge
61. Which of the following is an example of a transfer payment by the government?
a.
The government provides unemployment benefits to its citizens.
b.
The local government invests in building a community center.
c.
The government raises funds in order to build bridges and roads.
d.
The government provides healthcare to its citizens at a subsidized price.
e.
The government provides concessional rates to senior citizens who use public transport.
Moderate
MACR.BOYE.16.57 – ch. 11, 3
Fiscal Policy in the United States
Knowledge
62. Compared to the government in a typical industrial country, the government in a typical developing country:
a.
plays the same role in investment spending.
b.
plays a larger role in investment spending.
c.
plays a smaller role in investment spending.
d.
plays no role in investment spending.
e.
plays a more negative role in investment spending.
b
Easy
MACR.BOYE.16.58 – ch. 11, 4
Fiscal Policy in Different Countries
Knowledge
Fiscal Policy in the United States
Knowledge
63. Identify the industrial country that spends 43 percent of its budget on social security, health, and education programs.
a.
China
b.
India
c.
Brazil
d.
Russia
e.
The United States
64. Which of the following taxes are more easier to collect in industrial countries than in developing countries?
a.
Sales tax
b.
Capital gains tax
c.
Personal income tax
d.
Business tax
e.
Export tax
Easy
MACR.BOYE.16.58 – ch. 11, 4
United States – The Role of Government
Fiscal Policy in Different Countries
Knowledge
65. A(n) _____ is an indirect tax imposed on each sale at each stage of production.
a.
personal tax
b.
value-added tax
c.
excise duty
d.
sales tax
e.
ad-valorem tax
b
Easy
MACR.BOYE.16.58 – ch. 11, 4
Fiscal Policy in the United States
Knowledge
66. Which of the following is a form of a direct tax?
a.
Personal income tax
b.
Sales tax
c.
Excise duty
Easy
MACR.BOYE.16.58 – ch. 11, 4
Fiscal Policy in Different Countries
Knowledge
d.
Import tariff
e.
Value-added tax
67. Which of the following would not be considered an indirect tax?
a.
A value-added tax
b.
A tax on wheat export
c.
A tax on imported automobiles
d.
A tax on the income of a computer manufacturer
e.
A sales tax on cigarettes
Moderate
MACR.BOYE.16.58 – ch. 11, 4
Fiscal Policy in the United States
Knowledge
68. For which of the following reasons is VAT considered a very important revenue generator for a government?
a.
It is regressive in nature
b.
It targets only individuals in the high income class
c.
It cannot be avoided by individuals
d.
It boosts a country’s export
e.
It lowers a country’s import
MACR.BOYE.16.58 – ch. 11, 4
Global Business Insight – Value-Added Tax
Revised
69. Government expenditures on goods and services have an indirect impact on the aggregate demand, while taxes have a
direct impact.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.58 – ch. 11, 4
United States – The Role of Government
Fiscal Policy in Different Countries
Knowledge
70. A decrease in federal income tax rates is an example of fiscal policy that affects GDP through consumption
adjustments.
a.
True
b.
False
True
Easy
Comprehension
71. The flatter the aggregate supply curve, the less the amount of government spending necessary to close a $1 billion
GDP gap.
a.
True
b.
False
True
Challenging
MACR.BOYE.16.55 – ch. 11, 1
Comprehension
72. The higher the level of inflation, the stronger the impact of reductions in the personal income tax on real GDP .
a.
True
b.
False
False
Moderate
United States – The Role of Government
Knowledge
73. Other things equal, the steeper the slope of the aggregate supply curve, the more effective will be the expansionary
fiscal policy.
a.
True
b.
False
Challenging
MACR.BOYE.16.55 – ch. 11, 1
Fiscal Policy and Aggregate Demand
Knowledge
74. When the price level increases, the effect of a change in government spending on real GDP will be understated.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.55 – ch. 11, 1
Fiscal Policy and Aggregate Demand
Knowledge
75. If the price level falls as real GDP decreases, the multiplier effects of any given change in aggregate expenditures are
smaller than they would be if the price level remained constant.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.55 – ch. 11, 1
Fiscal Policy and Aggregate Demand
Comprehension
76. Higher taxes affect real GDP indirectly through both the consumption channel and the output supply channel.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.55 – ch. 11, 1
United States – The Role of Government
Fiscal Policy and Aggregate Demand
Comprehension
77. A balanced budget would not affect income because an increase in government spending is exactly matched by an
increase in taxes.
a.
True
b.
False
False
MACR.BOYE.16.55 – ch. 11, 1
MACR.BOYE.16.55 – ch. 11, 1
Fiscal Policy and Aggregate Demand
Comprehension
78. According to Ricardian equivalence, taxation and government borrowing have the same effect on spending in the
private sector.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.55 – ch. 11, 1
Fiscal Policy and Aggregate Demand
Knowledge
79. If the private sector anticipates higher future taxes as a result of a current budget deficit, current autonomous saving
will decline.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.55 – ch. 11, 1
Fiscal Policy and Aggregate Demand
Comprehension
80. An increase in deficit spending tends to raise interest rates, thereby resulting in a multiplier effect that is higher than
what would be associated with an equivalent increase in consumption spending.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.55 – ch. 11, 1
United States – The Role of Government
Fiscal Policy and Aggregate Demand
Comprehension
Revised
81. If crowding out exists, contractionary fiscal policy will cause the aggregate demand curve to shift in by more than
indicated by the government spending multiplier.
a.
True
b.
False
False
Knowledge
82. Empirical evidence suggests that the United States ran close to a balanced budget during the World War II.
a.
True
b.
False
False
Moderate
United States – The Role of Government
Knowledge
83. The U.S. government deficit as a percentage of GDP was much larger during World War II than it was in the 1980s
and 1990s.
a.
True
b.
False
True
Easy
Knowledge
84. The reduction in the U.S. government deficit in the early 1990s was the result of strong economic growth.
a.
True
b.
False
False
Easy
United States – The Role of Government
Knowledge
85. Assume that French budget deficits have raised the French prime interest rate relative to the U.S. T-bill rate. As a
result, we would expect the U.S. dollar to depreciate and the U.S. net exports to rise.
a.
True
b.
False
Challenging
Challenging
MACR.BOYE.16.55 – ch. 11, 1
Comprehension
86. Increased domestic imports and higher international trade deficits are possible results of government surpluses.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.57 – ch. 11, 3
Fiscal Policy in the United States
Comprehension
87. A higher U.S. federal budget deficit may act to raise future U.S. interest payments to foreigners.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.57 – ch. 11, 3
Fiscal Policy in the United States
Comprehension
88. Most industrial countries have adopted the regressive tax system.
a.
True
b.
False
False
Easy
MACR.BOYE.16.57 – ch. 11, 3
Fiscal Policy in the United States
Knowledge
89. A progressive tax system is one in which the tax rate actually increases as income rises.
a.
True
b.
False
True
MACR.BOYE.16.57 – ch. 11, 3
MACR.BOYE.16.57 – ch. 11, 3
Fiscal Policy in the United States
Application
90. Automatic stabilizers act to moderate business cycles primarily through the personal income and consumption
channels.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.57 – ch. 11, 3
Fiscal Policy in the United States
91. Transfer payments that use income to establish eligibility act as automatic stabilizers.
a.
True
b.
False
True
Easy
MACR.BOYE.16.57 – ch. 11, 3
United States – The Role of Government
Fiscal Policy in the United States
92. Governments in developing countries typically play a larger role in investment spending in their economies than do
the governments of industrial countries.
a.
True
b.
False
True
Easy
MACR.BOYE.16.58 – ch. 11, 4
Fiscal Policy in Different Countries
Knowledge
93. In general, developed countries depend more heavily on indirect taxes on goods and services than do developing
countries.
a.
True
b.
False
False
MACR.BOYE.16.58 – ch. 11, 4
United States – The Role of Government
Fiscal Policy in the United States
Knowledge
94. A value-added tax is a tax on consumption and not on personal income.
a.
True
b.
False
True
Easy
United States – The Role of Government
Knowledge
Knowledge