Question

1.Contractionary fiscal policy is intended to combat _______.

a.inflation

b.surpluses

c.stagnation

d.recessions

2.How does a regressive tax function?

a.It targets wages instead of other ways that people earn money.

b.It targets specific kinds of consumption most common among the wealthy.

c.It collects less money for the government as the economy grows.

d.It collects a higher rate from people with lower incomes.

3.Suppose a city introduces a 5% tax on the sale of all sodas and pre-sweetened drinks. This is an example of a(n) _______ tax.

a.proportional

b.marginal

c.excise

d.progressive

4.Which type of tax funds the Social Security and Medicare programs?

Payroll taxes

Individual income taxes

Corporate income taxes

Excise taxes

5.In 2014, interest payments on the national debt represented what percentage of federal spending?

Less than 1%

Over 10%

Roughly 2%

Roughly 6%

6.Evaluate whether going to war is an example of fiscal policy.

No, because going to war does not have any effect on the national economy.

Yes, provided the war is large enough to stimulate the economy.

No, because the primary goal of going to war is to improve national security not to improve the economy.

Yes, because any government spending program is, by definition, fiscal policy.

7.Suppose an economist recommends raising payroll taxes and cutting government investment in research and development. This is most likely a response to _______.

excessive economic growth

the onset of a recession

the effects of a recognition lag

steadily increasing deficits

8.Enacting an expansionary fiscal policy has which effect on the economy?

It shifts the long-run aggregate supply curve rightward.

It shifts the short-run budget curve leftward.

It shifts the aggregate demand curve rightward.

It shifts the short-run aggregate supply curve leftward.

9.Which feature of the Social Security tax makes it regressive?

It has a wage ceiling above which no tax is collected.

It funds a specific program rather than general government operations.

It is a payroll tax that comes directly out of workers' paychecks.

It is a flat tax set at 12.4% for all wage earners.

10.Which statement explains how automatic stabilizers function?

They prevent deficits from rising too quickly by adjusting tax rates to match government spending.

They adjust aggregate demand without requiring the government to make changes to fiscal policy.

They limit interest payments on the national debt by lowering interest rates when deficits climb.

They keep the unemployment rate low without the need for additional government spending.

11.What is the largest source of spending by state and local governments?

Healthcare

Social services

Education

Police and fire protection

12.Expansionary fiscal policy tends to lead to an increase in _______.

consumer spending and marginal tax rates

interest rates and private savings

tax revenues and wages

deficits and prices

13.Fiscal policy changes can face an implementation lag because _______.

it takes time to put new government programs into place

the legislative process tends to be highly cumbersome

economic statistics register changes in the economy very slowly

automatic stabilizers tend to mask the onset of recessions

14.What effect does an expansionary fiscal policy have on the financial capital market when the government is already running a deficit?

It shifts the supply curve downward.

If shifts the demand curve to the left.

It shifts the demand curve to the right.

It shifts the supply curve upward.

15.The standardized employment budget corrects for the existence of _______.

automatic stabilizers

budget deficits

payroll taxes

discretionary fiscal policy

16.Food stamps and unemployment insurance programs are examples of _______.

contractionary fiscal policy

standardized employment regulations

automatic stabilizers

discretionary government spending

Answer 1

1. a) Inflation

Contractionary fiscal policy means decrease in government spending or increase in taxes. This reduces supply of money in the economy so this policy is used when there is problem of high money supply or inflation. If contractionary fiscal policy is used in recession then economy will become worse so that can't be answer.

2. d) It collects a higher rate from people with lower incomes.

It implies that the rate of tax decreases with increase in income. If a person with $ 100,000 as his monthly income pays 10% income tax he still has a balance of $ 90,000 per month. But if a person with $ 500 as his monthly income has to pay 10% i.e. $ 50 then it might mean a cut in his essential consumption. It imply that a poor diet and therefore poor health. Such taxation is certainly regressive in nature.

3. a) proportional

Proportional Tax: It is a form of tax in which the tax rate is fixed and there will be no change in tax rates whether person earn high or low income. Example: Sales tax is levied equally among all people.

4. a) Payroll taxes

Payroll taxes are taxes imposed on employers or employees and it is usually calculated as a percentage of the salaries that employers pay their staff. Individual income taxes are levied on income of people, corporate taxes are levied on profit of firms and excise tax is levied on manufactured goods.