Chapter 15 Fiscal Policy

| November 9, 2018

25)
According to supply-side economics, a(n) ________ in the tax rate tends to
increase the labor supply and ________ aggregate output.
A)
decrease; increase
B)
increase; decrease
C)
decrease; decrease
D)
increase; increase

26)
The relationship between tax rates and tax revenues is shown on the
A)
IRS curve.
B)
Laffer curve.
C)
production possibilities frontier.
D)
Discretionary Spending curve.

27)
The Laffer curve illustrates that
A)
high tax rates could lead to lower tax revenues if economic activity is
severely discouraged.
B)
lowering tax rates will always increase tax revenues.
C)
high tax rates would increase tax revenue and increase the labor supply as
people work harder to maintain their standard of living.
D)
lowering tax rates will always decrease tax revenues.

28)
An increased federal budget deficit resulting from a recession can actually
help stabilize an economy through transfer payments because an increased budget
deficit will ________ transfer payments and thereby ________ the income of some
households.
A)
increase; increase
B)
increase; decrease
C)
decrease; increase
D)
decrease; decrease

29)
An increased federal budget deficit resulting from a recession can actually
help stabilize an economy, because corporate profits tend to fall in a
recession which, in turn, results in ________ corporate taxes and ________.
A)
higher; more tax revenue for the government
B)
higher; larger profits for businesses
C)
lower; fewer spending cuts for businesses
D)
lower; increases in the price level

30)
A federal budget ________ occurs when the federal government spends more than
it collects in taxes.
A)
surplus
B)
deficit
C)
equilibrium
D)
ceiling

31)
A federal budget ________ occurs when the government spends less than it
collects in taxes.
A)
surplus
B)
deficit
C)
equilibrium
D)
floor

32)
Suppose the government runs a budget surplus in a given year. It can reduce its
overall federal debt by
A)
not buying anything on credit.
B)
buying back bond it sold to the public.
C)
forcing a change in net exports.
D)
increasing taxes on luxury items.

Recall
the Application about the relationship between tax rates and tax revenues which
was proposed by Yu Juo, one of the twelve wise men who succeeded Confucius in
ancient China, to answer the following question(s).

33)
Recall the Application. The idea regarding the relationship between tax rates
and tax revenues proposed by Yu Juo is very similar to the idea proposed by
economist
A)
Adam Smith.
B)
Arthur Laffer.
C)
David Ricardo.
D)
Ben Bernanke.

34)
Recall the application. Yu Juo proposed that the Chinese government should
________ the tax rate in the case of a famine if the government had
insufficient funds, and this would ________ the standard of living.
A)
increase; increase
B)
cut; increase
C)
cut; decrease
D)
increase; decrease

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