poe exam 2 Flashcards
“transfer payments”
taxes in reverse
SS contributions are part of
payroll taxes
Joe complains that 32% of his income last year went to taxes. He is referring to his
average tax rate.
Suppose the federal government had budget surpluses of $80 billion in year 1 and $120 billion in year 2 but had budget deficits of $10 billion in year 3 and $40 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government’s public debt would have
decreased by $150 billion.
Proprietary income refers to
revenue generated by government-run businesses.
The tax revenues of local governments are typically
less than one-half of their expenditures.
In the diagram, solid arrows reflect real flows and broken arrows are monetary flows. Flow (8) might represent (product market to government)
automobile purchases by the state of Maine.
The largest proportion of the U.S. public debt is held by
the U.S. public (individuals, businesses, financial institutions, and government).
If the marginal tax rate is 20%, by how much must income have increased if your tax bill increases by $300?
$1,500
(300/.2)
Which of the following is not a significant source of revenue for the U.S. federal government?
Personal income taxes
Corporate income taxes
Property taxes
Payroll taxes
Property taxes
Which of the following is not an example of a final good or service (from the perspective of the national income accounts)?
seedlings and saplings purchased for resale by Wendy’s Garden Center
If output increases by 8 percent from year 5 to year 6, then in that period
year 5: 125
year 6: 120
real GDP will rise faster than nominal GDP
Most economists believe that property taxes
are regressive.
A large underground economy results in an
understated GDP.
In the second quarter (three-month period) of 2016, U.S. nominal GDP increased but U.S. real GDP declined. What can we conclude?
The price level rose by more than nominal GDP.
GDP calculate
GDP = private consumption + gross private investment + government investment + government spending + (exports – imports)
In an economy, the value of inventories was $75 billion in 2009 and $63 billion in 2010. In calculating total investment for 2010, national income accountants would
decrease it by $12 billion.
GDP in an economy is $11,050 billion. Consumer expenditures are $7,735 billion, government purchases are $1,989 billion, and gross investment is $1,410 billion. Net exports must be
use algebra and GDP formula
−$84 billion.
A nation’s capital stock was valued at $300 billion at the start of the year and $350 billion at the end. Consumption of private fixed capital in the year was $25 billion. Assuming stable prices, gross investment was
$75 billion.
the 50 from 300 to 350 plus the capital of 25
A decrease in a country’s capital stock occurs when
the consumption of fixed capital exceeds gross domestic investment.
Real GDP per capita
divide real gdp by population
The base year is 2005, and the GDP price index in 2004 is 92.0. This implies that the
prices in 2005 were higher than in 2004.
Personal consumption expenditures consist of
household and individual purchases of services and durable and nondurable goods.
Suppose that inventories were $40 billion in 2012 and $50 billion in 2013. In 2013, national income accountants would
add $10 billion to other elements of investment in calculating total investment.
To calculate real GDP
multiply quantities of final goods and services in an economy in a year by their prices in a base year and then sum the values.
A nation’s real GDP was $250 billion in 2014 and $265 billion in 2015. Its population was 122 million in 2014 and 125 million in 2015. What is the growth rate of real GDP per capita in 2015?
3.4%
average price level
will not increase a nation’s real GDP
increases in real GDP
Which of the following is a measure of economic growth that is most useful for measuring changes in the overall size of an economy?
The most likely cause for a shift in the production possibilities frontier from AB to CD is
(ab has less capital goods and less consumer goods (closer to origin)
cd has more capital goods and more consumer goods)
an increase in the quantity and quality of labor resources.
Curve (a) is the initial frontier for the economy. If the economy’s production possibilities then shift to curve (b), then point
(curve a has less capital goods than capital b)
N would indicate some unemployment or underemployment of resources.
A nation’s real GDP was $250 billion in 2014 and $265 billion in 2015. Its population was 120 million in 2014 and 125 million in 2015. What is its real GDP per capita in 2015?
$2,120 per person
An increase in an economy’s labor productivity would
(curve ab has less capital goods and less consumer goods, curve CD has more of both)
shift the production possibilities frontier from AB to CD.
Before the Industrial Revolution, living standards in the world
were relatively stagnant for long periods of time.
For a nation’s real GDP per capita to rise during a year,
real GDP must increase more rapidly than population.
If a nation’s real GDP is growing by 5 percent per year, its real GDP will double in approximately
14.4 years.
A poor person in the United States has ___.
a higher per capita real income than the average poor person in the world
The most likely cause of a shift of a production possibilities frontier of an economy AB to CD is
(curve ab has less capital goods and less consumer goods, curve CD has more of both)
technological progress.
Which of the following does not correctly characterize modern economic growth?
It has not affected the average lifespan of human beings.
Which of the following is a measure of economic growth that is most useful for comparing changes in standards of living?
increases in real GDP per capita
Human capital refers to the
education, training, and skills of workers.
Consider two scenarios for a nation’s economic growth. Scenario A has real GDP growing at an average annual rate of 2%; scenario B has an average annual growth of 4%. The nation’s real GDP would double in about
36 years under scenario A, versus 18 years under scenario B.
Which of the following will cause a decrease in the standard of living for an individual?
a decrease in socioeconomic status
In the long run, if the production of all goods increases for a society (there is economic growth), it will cause the production possibility frontier to
shift outward.
A headline states: “Real GDP falls again as the economy slumps.” This condition is most likely to produce what type of unemployment?
cyclical
A trough in the business cycle occurs when
employment and output reach their lowest levels.
For a given amount of nominal income, the real income will
fall if the price level rises.
Suppose the yearly consumption of the household 61 loaves of bread, 52 jars of peanut butter, and 57 gallons of milk. What is CPI in year 2, using year 1 as a base year?
(year 1: price of bread is 2, pb is 3.5, milk is 4.1
year 2: price of bread is 2.25, pb is 3.65, milk is 4.15)
CPI= (cost of market basket in current period/cost of market basket in base period)*100
The CPI is 104.82.
A person’s real income will increase by 3 percent if her nominal income increases by
5 percent while the price index rises by 2 percent.
If the CPI declines from one year to the next, then which one of the following statements is not true?
The CPI turns negative in the next year.
Official unemployment rate statistics may
understate the amount of unemployment because of the presence of “discouraged” workers who are not actively seeking employment.
Which of the following is the correct way to calculate the unemployment rate?
(unemployed/labor force) × 100
Use the following information to answer the next question.
The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.
Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer.
George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve.
Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.
Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work.
Which individual is cyclically unemployed?
George
To calculate the Consumer Price Index, the BLS surveys
over 10,000 households.
Use the following information to answer the next question.
The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.
Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.
Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work.
Which individual is structurally unemployed?
Jeanette
The Consumer Price Index includes
goods and services from eight major categories.
The goods and services used to calculate the consumer price index represent
what an average household buys.
In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?
expansion
A peak in the business cycle
is a temporary maximum point.
calculate equilibrium price
For a table:
look for values when Qd and Qs are equal, this is the equilibrium quantity. The price per bottle when these are equal is the equilibrium price.
If the table didn’t have an exact match, you’d look for the closest points where Qd and Qs intersect and use interpolation for more precise results
Qd is the quantity demanded minus the price per bottle with a P
Qs is the supplied plus the price per bottle with a P
Qd=x-yP
Qs=x-yP
Use Qd = Qs to find the equilibrium price.
Plug the price, or P, into either the supply equation or the demand equation to solve for equilibrium quantity.
An infestation of banana spiders makes it extremely difficult to harvest Indian bananas. The U.S. Surgeon General has stated that there are numerous health benefits from eating bananas. As a result, one should expect
the equilibrium price to rise, but the equilibrium quantity to be indeterminate from the information given.
(Because bananas are more difficult and expensive to harvest, supply will decrease and the supply curve for bananas will shift to the left. The news about the health benefits of bananas will cause demand to increase, which moves the demand curve for bananas to the right. The two new curves will intersect above the initial equilibrium, which will cause the equilibrium price to increase. The change in equilibrium quantity is indeterminate because the two new curves could create an increased, decreased, or the same equilibrium quantity. Without knowing the exact size of the shifts in the curves, we cannot definitively know whether the new equilibrium quantity will increase, decrease, or remain the same.)
After the excise tax is imposed, the price (or amount) producers keep after the tax is paid is _ per bottle.
The price (or amount) producers get to keep is the price paid by consumers after the tax is subtracted. Because the tax is $0.75 per bottle and the price paid by consumers is $2.00, the price producers get to keep is $2.00 – $0.75 = $1.25 per bottle.
The government is able to collect $ _ billion of tax revenue from the tax.
The amount of tax revenue collected is equal to the quantity sold in the market multiplied by the amount of the tax. In this case, the market quantity sold is the new equilibrium quantity with the tax, which is 3 billion bottles times the tax of $0.75 per bottle: 3 billion bottles × $0.75 = $2.25 billion in tax revenue.
Due to a recent hurricane there is a major loss of sugarcane crops. At the same time in the U.S. consumers are eating healthier and cutting back on eating items that have sugar in them. How will this affect the price and quantity in the sugar market?
Quantity decreases and price is indeterminate
If a price ceiling is set below the equilibrium price in a market
the quantity demanded will exceed the quantity supplied.
A television station reports that the price of coffee has increased but the quantity traded in the market has decreased. This situation would be caused by a(n)
decrease in supply.
Which is of the following statements is correct?
If demand decreases, then price will decrease.
Nebraska had an unseasonable cold winter requiring more salt for the roads than normal. If the supply does not change what would happen to the market for salt?
The increased demand but no change in quantity supplied causes a shortage of salt.
A tax on suppliers will cause the ________ schedule to shift ________.
supply, left
If a technological advance lowers production costs such that the quantity supplied increases by 60 units of this product at each price, the new equilibrium price would be
$12.
What might happen to the equilibrium price and quantity of Disney World tickets if Universal Studios offers discounts to families?
Price of Disney World tickets decreases, and quantity bought decreases
Which is of the following statements is correct?
If demand decreases, then price will decrease.
With a tax of $4,000 on $24,000 taxable income, the average tax rate is
16.67%.
Which of the following statements about payroll taxes is false?
They provide funds for Social Security.
They include Medicare taxes.
Both employers and employees pay these taxes.
They are lump-sum taxes not based on wages/salaries.
They are lump-sum taxes not based on wages/salaries.
With a tax of $2,000 on $30,000 of income, and $2,000 on $70,000 of income, we can describe the structure of this tax as
regressive.
Which of the following is not a government activity that is involved in public finance?
Providing public goods and services such as national defense and education.
Running government-owned enterprises such as hospitals, utilities, and lotteries.
Redistributing income through various taxes and income-transfer payments.
Regulating the activities of firms in the financial sector of the economy.
Regulating the activities of firms in the financial sector of the economy.
An increase in the public debt and its subsequent repayment will tend to
mildly increase the income inequality in the U.S.
Suppose a government wants to reduce its budget deficit. It could
reduce the number of activities that are considered illegal.
The circular flow model with government included would show that government
provides goods and services to businesses and households and pays for them with net taxes.
Which of the following is a primary use for national income accounts?
to measure changes in the value of production and income in the economy
In the treatment of U.S. exports and imports, national income accountants
add exports but subtract imports in calculating GDP.
“Net foreign factor income” in the national income accounts refers to the difference between the
income Americans gain from supplying resources abroad and the income that foreigners earn by supplying resources in the United States.
Nominal GDP is
the sum of all monetary transactions involving final goods and services that occur in the economy in a year.
“Full employment” refers to the situation when there is
no cyclical unemployment.
The total population of an economy is 175 million, the labor force is 125 million, and the number of employed workers is 117 million. The unemployment rate for this economy is
6 percent.
The Cronkite Medical Center purchases a new piece of equipment that will automatically send notifications of a change in a patient’s condition to their doctor and nurses. In the CPI, this would
not be counted.
CPI=
(cost of market basket in current period/cost of market basket in base period)*100
Real income will rise from one year to the next if nominal income
falls and the price level falls faster.
to find labor force
add employed and unemployed population
