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Eco202, Spring 2007, Quiz #8
Name___________________________________ Seat
____________
Prof. Bill Even
Put all answers in the space provided at the end of the quiz.
5) An increase in the tax on interest earned by savers would cause the equilibrium before tax interest
rate to ______ and the equilibrium level of investment to ______.
A) rise; rise.
B) rise; fall.
C) fall; fall
D) fall; rise.
1) The largest source of government revenues is ________.
A) corporate income taxes
B) social security taxes
C) indirect taxes
D) personal income taxes
2) In 2003, the U.S. government budget registered a deficit. By definition, then,
A) tax revenues were equal to government expenditure.
B) tax revenues were greater than government expenditure.
C) tax revenues were less than government expenditure.
D) the government debt became negative.
Year
1
2
3
4
5
6) In the absence of the Ricardo-Barro effect, an increase in the government deficit results in a
________ real interest rate and a ________ equilibrium quantity of investment.
A) lower; higher
B) higher; lower
C) higher; higher
D) lower; lower
7) According to the Ricardo-Barro effect, government deficits
A) lead to a rise in the equilibrium real interest rate, crowding out investment.
B) lead to simultaneous decreases in private saving and decreases in the equilibrium real interest
rate and investment.
C) lead to a fall in the equilibrium real interest rate and a rise in investment.
D) lead to simultaneous increases in private saving and no effect on the equilibrium real interest
rate and investment.
Government Government
tax revenues expenditures
(billions of
(billions of
dollars)
dollars)
240
240
250
245
260
255
300
320
325
340
8) In order for the United States to repay its international debt, the United States would need to
A) cut taxes.
B) have a surplus of imports over exports.
C) have a surplus of exports over imports.
D) have a current account deficit.
9) An example of a discretionary fiscal policy is when
A) food stamp payments rise when the economy is in a recession.
B) Congress passes a law that raises personal marginal tax rates.
3) The government begins year 1 with $25 billion of debt. Based on the information in the above
table, what is the amount of debt following year 4?
C) unemployment compensation payments rise with unemployment rates.
D) tax receipts fall as incomes fall.
A) $320 billion
B) $35 billion
10) If the government wants to engage in fiscal policy to increase real GDP, it could
C) $5 billion
A) increase government purchases in order to increase aggregate supply.
D) -$20 billion (The government has net saving rather than debt.)
B) decrease government purchases in order to decrease aggregate demand.
C) decrease government purchases in order to increase aggregate supply.
4) The Laffer curve shows that increasing ________ increases ________ when ________ low.
D) increase government purchases in order to increase aggregate demand.
A) tax rates; tax revenue; tax rates are
B) tax revenue; potential GDP; tax revenue is
11) Because of automatic stabilizers, when GDP fluctuates the
C) potential GDP; tax revenue; tax revenue is
A) government's deficit fluctuates directly with GDP so that it is larger when GDP increases.
D) None of the above answers is correct.
B) government's budget remains in balance.
C) the economy will automatically go to full employment.
D) government's deficit fluctuates inversely with GDP so that it is larger when GDP decreases.
1
2
16) According to the WSJ blog on "rainy day savings"
A) capital gains are not included in the NIPA measure of savings.
B) the personal savings rate in the U.S. fell below 1% of disposable income in recent years.
C) the recent decline in the NIPA savings rate was concentrated in the richest 20% of
Americans.
D) all of the above.
1. _____ 2. _____ 3. _____ 4. _____ 5. _____ 6. _____ 7. _____ 8. _____
9. _____ 10. _____ 11. _____12. _____ 13. _____ 14. _____ 15. _____ 16. _____
12) Using the above figure, if full employment occurs at $12 trillion and the economy is actually
producing $12 trillion, then there is a
A) cyclical surplus.
B) structural surplus.
C) structural deficit.
D) cyclical deficit.
13) Using the above figure, if full employment occurs at $10 trillion, but the economy is actually
producing $12 trillion, then there is a
A) cyclical deficit.
B) cyclical surplus.
C) structural surplus.
D) structural deficit.
14) According to Mankiw's blog on supply side economics, a reduction in tax rates will lead to a
smaller loss in tax revenue if
A) labor supply is more elastic
B) labor supply is less elastic
C) labor demand is more elastic
D) labor demand is less elastic
15) In 2006, the U.S. national debt was approximately
A) $14 trillion
B) $8 trillion
C) $600 billion
3
D) $300 billion
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Answer Key
Testname: Q8F1F06
Eco202, Spring 2007, Quiz #8
____________
Prof. Bill Even
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)
16)
D
C
3) B
4) A
5) B
6) B
7) D
8) C
9) B
10) D
11) D
12) B
13) B
14) A
1)
2)
15) B
Name___________________________________ Seat
16) D
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