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Exam 15: Fiscal Policy

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Question 71

Multiple Choice

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The share of corporate tax in total federal revenues

A) is larger than the other components of federal revenue.
B) is the smallest of all the components of federal tax revenue.
C) has declined over the past few decades to a relatively low level.
D) has grown significantly in each of the past 10 years.

E) A) and C)
F) All of the above

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Question 72

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What are the two tools of fiscal policy that governments can use to stabilize an economy?

A) government spending and technology improvements
B) government spending and taxation
C) taxation and controlling imports
D) taxation and controlling exports

E) B) and D)
F) B) and C)

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Question 73

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As a result of an increase in the personal income tax rate, consumers are likely to

Summary of the article: Obamaʹs economic recovery plan not a hit with economists By Paul Wiseman and Richard Wolf USA Today September 8, 2010 In an attempt to boost the struggling economy, President Obama proposed a new $180 billion package of tax breaks and transportation projects. Obamaʹs proposal includes the following: -Allowing businesses to deduct from their taxes 100 percent of investments in new equipment through 2011, giving businesses an additional $200 billion right away and costing the Treasury only $30 billion over the next ten years due to depreciation write-offs. -Expanding the business tax credit for research and development and making this credit permanent, at an estimated cost of $100 billion over ten years. -Construction spending of $50 billion to build or repair roads, rail lines and airport runways. Some economists are not convinced that these proposals will create any dramatic improvements in the economy, claiming that they will not result in the creation of many new jobs and that tax breaks on payroll taxes may be more effective than credits for research and development. Economists Mark Zandi and Alan Blinder did say, however, that construction spending on infrastructure eventually generates $1.57 in growth for every dollar spent, but the benefit to the economy will not be immediate. -The Obama proposal to lower business taxes by increasing tax deductions is an example of

Spending on programs that _______, such as Social Security and Medicare, is classified as entitlement and mandatory spending.

According to supply-side economics, a(n) _______ in the tax rate tends to increase the labor supply and _______ aggregate output.

Suppose the economy is operating below potential output. If policy makers try to avoid a budget deficit by raising taxes or reducing government spending, these actions would

Tax cuts aimed at businesses can stimulate

Why is it difficult to implement fiscal policies?

Contractionary policies are government policies that

Because the government has so much money, and can print more, it does not need to borrow and therefore rarely pays net interest on debt.

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 _______.

Taxes and transfer payments automatically reduce fluctuations in real GDP and thereby stabilize the economy without any need for decisions from Congress or the White House.