Final HW Reviews Flashcards
A proportional tax, or flat-rate tax _______.
takes the same percentage of a person’s taxable income in tax regardless of their level of income.
What is the difference between the average tax rate and the marginal tax rate?
The average tax rate uses total income while the marginal tax rate refers to the tax rate of the last dollar earned.
What is a proportional tax system?
Under a proportional system of taxation, taxpayers at all income levels end up paying the same percentage of their income in taxes.
Suppose the federal government replaced the current income tax system with a system that taxed all income at 20%, but the first $20,000 of income was tax-exempt. Such a system would be a ________________ tax system.
Progressive
What is the relationship between tax rates and tax revenues?
Increasing tax rates will initially increase tax revenues. Eventually, an increase in the tax rate will erode the tax base and revenues will decrease.
What is an excise tax?
A tax levied on purchases of a particular good or service. (e.g. cigarettes)
What is the most most important source of revenue for the federal government?
The federal personal income tax accounts for about 43% of all federal revenues and is paid by all American citizens, resident aliens, and most others who earn income in the United States.
What is the structure of the U.S. income tax system?
The U.S. income tax system is a progressive tax system where the marginal tax rate exceeds the average tax rate.
Some economists argue that corporate income taxes are typically not paid by the firm, but by ____.
the stockholders, employees, and customers.
What is stipulated by dynamic tax analysis?
An increase in the tax rate will likely cause a decrease in the tax base.
Assessing taxes by charging a tax rate equal to a fraction of the market price of each unit purchased is known as _____
ad valorem taxation.
How do the taxes that are levied on goods and services affect market prices and quantities?
Part 2
The equilibrium quantity will decrease and the market price will increase by less than the amount of the tax.
An excise tax of 60 cents is levied on a product. As a result of the tax, the price of the product goes from $1 to $1.40. Which of the following is true?
a) The producer pays the entire tax.
b) The consumer pays the entire tax.
c) The producer pays the majority of the tax but not the entire tax.
d) The consumer pays the majority of the tax but not the entire tax.
d) The consumer pays the majority of the tax but not the entire tax.
The federal government has its best opportunity to lower its national debt when it has ______.
A budget surplus
What is the definition of public debt?
The total value of all outstanding government securities.
The accumulation of borrowing by all federal government agencies is referred to as the ____.
Gross Public debt
When considering the gross public debt, one can argue that it is overstated because _____
the federal government owes itself money.
The net public debt is equal to _______.
gross government debt minus all government interagency borrowing.
Why would public debt impose a burden on future generations?
Government borrowing to finance the debt may drive up interest rates and crowd out economic investment.
If the U.S. federal government operates with a budget deficit it must borrow. In order to entice people to lend money to finance this deficit, the U.S. government must______
pay a higher rate of interest on the bonds it sells.
As the interest rate or yield on U.S. bonds increases, foreigners ____________.
buy more U.S. bonds and fewer U.S. goods and services.
A natural consequence of the government continually spending more than what it takes in through tax receipts, ceteris paribus, is that ______.
the government takes up a larger percentage of the economic activity.
The demand for money ______.
is a downward sloping function of the interest rate.
If the Fed decreases the discount rate, relative to the federal funds rate, then this ______________.
would decrease the cost of funds for institutions borrowing from the Fed.
An increase in the money supply will:
a) not change the long-run aggregate supply curve but ultimately will only raise the price level in long-run equilibrium price level.
b) move the equilibrium point along the short-run aggregate supply curve.
c) shift the aggregate demand curve outward and to the right.
d) all the above
d) all the above
An increase in the money supply will:
a) increase the price level.
b) create a direct effect of an increase in consumption due to higher money balances.
c) create an indirect effect of increased consumption and investment through increased saving and loans.
d) all the above
d) all the above
Contractionary monetary policy causes the ______.
interest rate to increase.
The net export effect of contractionary monetary policy predicts that a country’s __________.
exports decrease as the money supply contracts.
As a result of monetary policy of the Fed, the dollar appreciated and the amount of exports decreased. What Fed policy could have caused this outcome?
A Fed sale of bonds to brokers and banks.
Which of the following events would be likely to increase the supply of money?
a) The fed conducts an open market sale of bonds
b) Banks are wary of loans and hold onto their reserves
c) The FED decreases the discount rate relative to the federal funds rate
d) The FED increases the reserve requirements for banks.
c) The FED decreases the discount rate relative to the federal funds rate
Suppose that currently, the economy is over-utilizing its resources.
What type of monetary policy could the Fed choose and how would the policy change the economy?
The FED could use a contractionary monetary policy to reduce aggregate demand and GDP.
Suppose that the Fed judges inflation to be the most significant problem in the economy and that it wishes to employ all three of its policy instruments, then the Fed will engage in ___________.
- open market sales
- increasing the reserve requirement
- Increasing the discount rate.
Decreases in the money supply affect the economy indirectly because _______.
interest rates increase, causing planned investment to decrease, which causes a decrease in aggregate demand.
If a country has a comparative advantage in the production of some good then
that country can produce the good at a lower opportunity cost compared to other producers
Which of the following is not true?
a) Protecting U.S. jobs by restricting foreign competition ultimately leads to fewer jobs in U.S. export industries.
b) In the long run, imports are paid for by exports.
c) Any restriction of imports ultimately reduces exports.
d) Import restrictions will not elicit retaliation.
D
During the Great Depression of the 1930s, many industrial countries tried protecting domestic jobs by imposing tariffs. According to economic theory, the likely outcome would be
reduced exports and volume of trade for everyone
Which of the following is not an argument against free trade?
a) Exporting tech can pose a threat to national defense
b) Comparative advantage
c) Infant industry
d) Dumpuing
Comparative advantage
If a firm in China sells its product in the U.S. at a price below its cost of production, the firm is said to be_______.
Dumping its goods in the US Market.
When a country protects an infant industry in the hope that it will become efficient enough to compete effectively in the world market
a) consumers in that country lose if they continue to pay a price higher than the world price for the good in question.
b) the stockholders of companies in the infant industry gain when they are protected from world competition.
c) the import-restricting arrangements often remain after the time period allotted for the industry to mature.
d) all the above
e) only A and C
d) All the above
One key difference between a tariff and a quota is that
the tariff generates tax revenues for the government and the quota does not.
Which of the following restrictions on international trade sets a maximum allowable amount of a commodity that can be imported?
A quota
Describe “winners and losers” from tariffs.
Consumers lose
Domestic producers gain
Government gains
On Wednesday, the exchange rate between the Japanese yen and the U.S. dollar was $0.0100
per yen. On Thursday, it was $0.0096 per yen. It can be concluded that the U.S. dollar has ______relative to the yen.
Appreciated
The demand for yuan by Americans is also _________
A supply of dollars.
How are flexible exchange rates determined?
The exchange rate is determined where the quantity of a currency demanded is equal to the quantity supplied of the currency.
