Chapter 15 Fiscal Policy

| November 9, 2018

35)
This Application addresses the idea that
A)
cutting tax rates will decrease tax revenue.
B)
cutting tax rates may actually increase tax revenues.
C)
increasing tax rates is necessary to increase tax revenues.
D)
there is ultimately no relationship between tax rates and tax revenues.

36)
When the economy slows down and national income falls, the government will have
________ tax revenue to fund programs.
A)
more
B)
less
C)
about the same
D)
a rapid increase in

37)
The government strives to operate at neither a deficit nor surplus budget in
order to keep the federal budget
A)
balanced.
B)
equal to inflation.
C)
in line with the stock market.
D)
equal to that of other countries.

38)
During a recession, tax revenues ________ while government transfer payments
________, thereby mitigating part of the adverse effects of a recession and
stabilizing the economy.
A)
fall; increase
B)
fall; decrease
C)
rise; increase
D)
rise; decrease

39)
Suppose initially the federal budget is balanced. The economy then enters a
period of expansion. What is likely to happen to the federal budget?
A)
It will show a surplus.
B)
It will show a deficit.
C)
It will remain balanced.
D)
It will automatically stabilize.

40)
Automatic stabilizers
A)
require explicit actions by policy makers to become active.
B)
work without the need for decisions from Congress or the White House.
C)
magnify fluctuations in the economy.
D)
increase taxes during recessions.

41)
Automatic stabilizers
A)
minimize fluctuations in the economy.
B)
must be authorized by the President.
C)
decrease taxes during expansions.
D)
increase welfare payments during expansions.

42)
Which of the following is an example of an automatic stabilizer?
A)
Congress authorizes spending increases during a recession.
B)
Congress increases the tax rate during an expansion.
C)
More unemployment benefits are paid during a recession.
D)
Welfare payments decrease during a recession.

43)
Suppose an economy has a balanced federal budget, and a large increase in oil
prices plunges the economy into a recession. Tax revenues will ________ and
expenditures on transfer payments will ________, resulting in a budget
________.
A)
fall; increase; deficit
B)
increase; increase; surplus
C)
fall; fall; deficit
D)
increase; fall; surplus

44)
Suppose an economy has a balanced federal budget, and a favorable supply shock
hits the economy. Tax revenues will ________ and expenditures on transfer
payments will ________, resulting in a budget ________.
A)
fall; increase; deficit
B)
increase; increase; surplus
C)
fall; fall; deficit
D)
increase; fall; surplus

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