Final HW Reviews

Question 1

A proportional​ tax, or​ flat-rate tax _______.

Answer 1

takes the same percentage of a​ person’s taxable income in tax regardless of their level of income.

Question 2

What is the difference between the average tax rate and the marginal tax​ rate?

Answer 2

The average tax rate uses total income while the marginal tax rate refers to the tax rate of the last dollar earned.

Question 3

What is a proportional tax system?

Answer 3

Under a proportional system of​ taxation, taxpayers at all income levels end up paying the same percentage of their income in taxes.

Question 4

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.

Answer 4

Progressive

Question 5

What is the relationship between tax rates and tax​ revenues?

Answer 5

Increasing tax rates will initially increase tax revenues. Eventually, an increase in the tax rate will erode the tax base and revenues will decrease.

Question 6

What is an excise tax?

Answer 6

A tax levied on purchases of a particular good or service. (e.g. cigarettes)

Question 7

What is the most most important source of revenue for the federal government?

Answer 7

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.

Question 8

What is the structure of the U.S. income tax​ system?

Answer 8

The U.S. income tax system is a progressive tax system where the marginal tax rate exceeds the average tax rate.

Question 9

Some economists argue that corporate income taxes are typically not paid by the​ firm, but by ____.

Answer 9

the​ stockholders, employees, and customers.

Question 10

What is stipulated by dynamic tax​ analysis?

Answer 10

An increase in the tax rate will likely cause a decrease in the tax base.

Question 11

Assessing taxes by charging a tax rate equal to a fraction of the market price of each unit purchased is known as _____

Answer 11

ad valorem taxation.

Question 12

How do the taxes that are levied on goods and services affect market prices and​ quantities?
Part 2

Answer 12

The equilibrium quantity will decrease and the market price will increase by less than the amount of the tax.

Question 13

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.

Answer 13

d) The consumer pays the majority of the tax but not the entire tax.

Question 14

The federal government has its best opportunity to lower its national debt when it has ______.

Answer 14

A budget surplus

Question 15

What is the definition of public debt?

Answer 15

The total value of all outstanding government securities.

Question 16

The accumulation of borrowing by all federal government agencies is referred to as the ____.

Answer 16

Gross Public debt

Question 17

When considering the gross public​ debt, one can argue that it is overstated because _____

Answer 17

the federal government owes itself money.

Question 18

The net public debt is equal to _______.

Answer 18

gross government debt minus all government interagency borrowing.

Question 19

Why would public debt impose a burden on future​ generations?

Answer 19

Government borrowing to finance the debt may drive up interest rates and crowd out economic investment.

Question 20

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______

Answer 20

pay a higher rate of interest on the bonds it sells.

Question 21

As the interest rate or yield on U.S. bonds​ increases, foreigners ____________.

Answer 21

buy more U.S. bonds and fewer U.S. goods and services.

Question 22

A natural consequence of the government continually spending more than what it takes in through tax​ receipts, ceteris​ paribus, is that ______.

Answer 22

the government takes up a larger percentage of the economic activity.

Question 23

The demand for money ______.

Answer 23

is a downward sloping function of the interest rate.

Question 24

If the Fed decreases the discount​ rate, relative to the federal funds​ rate, then this ______________.

Answer 24

would decrease the cost of funds for institutions borrowing from the Fed.

Question 25

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

Answer 25

d) all the above

Question 26

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

Answer 26

d) all the above

Question 27

Contractionary monetary policy causes the ______.

Answer 27

interest rate to increase.

Question 28

The net export effect of contractionary monetary policy predicts that a​ country’s __________.

Answer 28

exports decrease as the money supply contracts.

Question 29

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?

Answer 29

A Fed sale of bonds to brokers and banks.

Question 30

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.

Answer 30

c) The FED decreases the discount rate relative to the federal funds rate

Question 31

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?

Answer 31

The FED could use a contractionary monetary policy to reduce aggregate demand and GDP.

Question 32

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 ___________.

Answer 32

1. open market​ sales
2. increasing the reserve​ requirement
3. Increasing the discount rate.

Question 33

Decreases in the money supply affect the economy indirectly because _______.

Answer 33

interest rates ​increase, causing planned investment to decrease​, which causes a decrease in aggregate demand.

Question 34

If a country has a comparative advantage in the production of some good then

Answer 34

that country can produce the good at a lower opportunity cost compared to other producers

Question 35

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.

Answer 35

D

Question 36

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

Answer 36

reduced exports and volume of trade for everyone

Question 37

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

Answer 37

Comparative advantage

Question 38

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_______.

Answer 38

Dumping its goods in the US Market.

Question 39

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

Answer 39

d) All the above

Question 40

One key difference between a tariff and a quota is that

Answer 40

the tariff generates tax revenues for the government and the quota does not.

Question 41

Which of the following restrictions on international trade sets a maximum allowable amount of a commodity that can be​ imported?

Answer 41

A quota

Question 42

Describe “winners and losers” from tariffs.

Answer 42

Consumers lose
Domestic producers gain
Government gains

Question 43

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.

Answer 43

Appreciated

Question 44

The demand for yuan by Americans is also _________

Answer 44

A supply of dollars.

Question 45

How are flexible exchange rates​ determined?

Answer 45

The exchange rate is determined where the quantity of a currency demanded is equal to the quantity supplied of the currency.