Question 1) The federal budget A) is required to balance by law. B) can have a surplus but not a deficit. C) can have a deficit but not a surplus. D) can have a deficit or a surplus but cannot be balanced. E) can have a deficit, a surplus, or a balance 2) If the federal government has a budget surplus, then it is definitely the case that A) tax revenue exceeds government outlays. B) tax revenue and government outlays are equal. C) the tax revenue is falling and government outlays are rising. D) government outlays exceed tax revenue. E) the tax revenue is rising and government outlays are falling. 3) The national debt is the amount A) by which government tax revenue exceed outlays in a given year. B) of debt outstanding that arises from past budget deficits. C) by which government outlays exceed tax revenue in a given year. D) of government outlays summed over time. E) of all future entitlement spending. 4) In order to help the economy recover from a recession using fiscal policy, the government can ________ so that aggregate demand increases. A) cut taxes B) raise taxes C) cut government expenditure on goods and services D) raise interest rates E) decrease the quantity of money 5) To eliminate a recessionary gap, the government can ________ government expenditures on goods and services or ________ taxes. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease E) increase; not change 6) Automatic stabilizers are defined as A) actions taken by the President without Congressional consent to stabilize the economy. B) actions taken by an act of Congress to stabilize the economy. C) policy that stabilizes without the need for action by the government. D) discretionary policy taken to stabilize the economy. E) policy that has no multiplier effects. 7) An example of automatic stabilizer is A) Congress passing a tax rate reduction package. B) the federal government expanding spending at the Department of Education. C) expenditure for unemployment compensation increasing as economic growth slows. D) the Federal Reserve reducing interest rates as economic growth slows. E) a change in taxes that has no multiplier effect 8. A flat tax: A) is designed so that everybody would pay the same number of dollars in taxes. B) is designed in such a way that as a person’s income rises, the tax rate falls. C) is designed so that everybody would be charged the same percentage of their income. D) is designed to take a smaller percentage of higher incomes as compared to lower incomes. 9. If the government sought to use fiscal policy to end an unsustainable inflation, what would happen to a previously existing budget deficit? A) It would get larger. B) It would get smaller. C) It would get larger if it used changes in government purchases, but smaller if it used tax changes. D) It would get smaller if it used changes in government purchases, but larger if it used tax changes. 10. Which of the following now accounts for the highest percentage of state and local spending? A) Education B) public welfare C) Transportation D) social security 11. A regressive tax: A) is designed to take a larger percentage of higher incomes as compared to lower incomes. B) is designed in such a way that as a person’s income rises, the amount of tax as a proportion of income rises. C) takes a greater proportion of the income of lower-income groups than of higher-income groups. D) is considered to be the most equitable type of tax. Exhibit 14-1 A flat tax plan allows individuals to deduct a standard allowance of $25,000 from their wages. Assume that the flat tax rate is 12%. 12. Refer to Exhibit 14-1. How much income tax would you have to pay if you were earning $20,000 a year? A) $2,400 B) $1,200 C) $3,000 D) zero 13. If the federal government was originally running a balanced budget, expansionary fiscal policy would cause the government to run a deficit, whether it changed gove
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