Week 1 Worksheet



Which of the following transactions best represents the government playing the role of provider of a good or service?

 

• [pic]

The state government imposes a tax on cigarette purchases to discourage smoking.

• [pic]

The local government purchases office furniture for renovations to its Department of Parks and Recreation.

• [pic]

The federal government provides Social Security checks to those citizens who qualify for the payment.

• [pic]

The state government pays for police to patrol the state and federal roadways.

Explanation

When the government provides police patrols, it provides a service to the public. In contrast, when governments buy goods like office furniture, the private sector provides goods to the government sector. Imposing taxes helps to finance goods and services provided by governments, but it is not considered a service. Social Security payments are a means of redistributing income, but they are not a government service either.

Which of the following transactions best represents the government making a transfer payment to a household or business?

 

• [pic]

The federal government’s Supplemental Nutritional Assistance Program assists low-income families with purchasing food. 

• [pic]

The state government’s Office of Motor Vehicles imposes an annual licensing fee for all in-state vehicles.

• [pic]

The federal government’s Internal Revenue Service hires extra accountants during the tax season to audit tax returns.

• [pic]

The local government’s Department of Parks and Recreation operates a local pool for residents in the summer.

 

Explanation

A transfer payment is a payment from the government to the private sector that is not intended to reimburse the public sector for delivering a good or service. Providing low-income families with funds to buy food is an example of a transfer payment. In this situation, the low-income families that receive the transfer payments do not provide any service or goods to the government. They receive a transfer payment that enables them to buy food for their family.

The Social Security tax is regressive because

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

as income increases, the Social Security tax rate increases at a decreasing rate.

• [pic]

each individual must pay a set percentage of his or her income in Social Security taxes.

• [pic]

the Social Security tax rate applied does not rise with the salary level.

• [pic]

no Social Security tax is collected for incomes in excess of a "cap" income level.

How is the public debt calculated?

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

By subtracting the government’s total liabilities from its total assets

• [pic]

By summing the annual difference between tax revenues and government spending over the years

• [pic]

By subtracting current government spending from current government tax revenues

• [pic]

By summing the annual government purchases over time

A federal budget deficit exists when federal government

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

spending is increasing in a given year.

• [pic]

spending exceeds tax revenues in a given year.

• [pic]

taxation is decreasing in a given year.

• [pic]

assets are less than liabilities in a given year.

Which of the following is the largest expenditure item of state governments?

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

Education

• [pic]

Public welfare

• [pic]

Health and hospitals

• [pic]

Highways

Which of the following is the largest expenditure item of local governments?

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

Public safety

• [pic]

Education

• [pic]

Welfare

• [pic]

Highways

Many states in the U.S. acquire significant amounts of funds from the following, except

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

personal income taxes.

• [pic]

state-run lotteries.

• [pic]

property taxes.

• [pic]

grants from the Federal government.

A public debt that is owed to foreigners can be burdensome because

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

foreign interest rates are persistently higher than domestic interest rates.

• [pic]

the payment of interest will conflict with a nation's foreign aid programs.

• [pic]

the payment of interest reduces the volume of goods and services available for domestic uses.

• [pic]

the payment of interest will necessarily have a deflationary effect on prices in the paying nation.

Which of the following is not a significant source of revenue for the U.S. federal government?

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

Corporate income taxes

• [pic]

Property taxes

• [pic]

Payroll taxes

• [pic]

Personal income taxes

Which one of the following is not an excise tax of the federal government?

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

Tobacco tax

• [pic]

General sales tax

• [pic]

Alcoholic beverage tax

• [pic]

Gasoline tax

Social Security contributions are part of

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

excise taxes.

• [pic]

payroll taxes.

• [pic]

indirect taxes.

• [pic]

reverse taxes.

Public finance is the subdiscipline of economics that studies the various ways in which

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

firms in the financial sector provide services to households and firms.

• [pic]

governments may regulate and promote the stability of the financial sector.

• [pic]

governments raise and expend money.

• [pic]

the general public acquires financing for their purchases.

Which of the following is not a government activity that is involved in public finance?

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

Providing public goods and services such as national defense and education.

• [pic]

Regulating the activities of firms in the financial sector of the economy.

• [pic]

Running government-owned enterprises such as hospitals, utilities, and lotteries.

• [pic]

Redistributing income through various taxes and income-transfer payments.

The largest proportion of the U.S. public debt is held by

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

the Federal Reserve System.

• [pic]

the U.S. public (individuals, businesses, financial institutions, and government).

• [pic]

foreign individuals and institutions.

• [pic]

U.S. government agencies.

Which of the following statements about payroll taxes is false?

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

They are lump-sum taxes not based on wages/salaries.

• [pic]

They include Medicare taxes.

• [pic]

They provide funds for Social Security.

• [pic]

Both employers and employees pay these taxes.

A budget surplus means that

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

a nation’s imports are greater than its exports.

• [pic]

government expenditures are greater than revenues in a given year.

• [pic]

government revenues are greater than expenditures in a given year.

• [pic]

a nation’s exports are greater than its imports.

One important reason why the United States government is not likely to go bankrupt even with a large public debt is that it has

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

a strong military to protect it from creditors.

• [pic]

the capacity to pay off its outstanding debt with gold.

• [pic]

the ability to decrease interest rates and increase investment spending.

• [pic]

the power to print money to finance the debt.

Which is the most important source of tax revenue for local governments?

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

Property taxes

• [pic]

Personal income taxes

• [pic]

Corporate income taxes

• [pic]

Sales and excise taxes

The two largest sources of tax revenue for the U.S. federal government are

rev: 06_21_2018

Multiple Choice

窗体顶端

• [pic]

payroll taxes and excise taxes.

• [pic]

personal income taxes and payroll taxes.

• [pic]

excise taxes and customs duties.

• [pic]

personal income taxes and corporate income taxes.

For each of the following scenarios, determine the effect on aggregate supply.

 

a. There is an unexpected decrease in oil prices. This causes:

• [pic]

a movement along the aggregate supply curve to the right, indicating an increase in the quantity of real GDP supplied.

• [pic]

an increase in aggregate supply, shifting the aggregate supply curve to the right. 

• [pic]

a movement along the aggregate supply curve to the left, indicating a decrease in the quantity of real GDP supplied.

• [pic]

a decrease in aggregate supply, shifting the aggregate supply curve to the left.

b. The government increases the amount that all producers are required to contribute to health insurance coverage. This causes:

• [pic]

a movement along the aggregate supply curve to the left, indicating a decrease in the quantity of real GDP supplied.

• [pic]

a decrease in aggregate supply, shifting the aggregate supply curve to the left. 

• [pic]

an increase in aggregate supply, shifting the aggregate supply curve to the right.

• [pic]

a movement along the aggregate supply curve to the right, indicating an increase in the quantity of real GDP supplied.

Explanation

a. As oil prices decline, all producers will experience a decrease in the cost of production, as they will spend less on inputs using oil. When costs across the board decrease, it means producers can produce more goods and services at every price level. This will cause aggregate supply to increase. An increase in aggregate supply is shown as a shift in the aggregate supply curve to the right.

 b. As producers have to spend more to cover the cost of health insurance, all producers will experience an increase in the cost of production because they will spend more on labor inputs. When costs across the board increase, it means producers are able to produce fewer goods and services at every price level. This will cause aggregate supply to decrease. A decrease in aggregate supply is shown as a shift in the aggregate supply curve to the left.

For each of the following scenarios, determine whether the situation described can be attributed to the real-balances effect, the interest-rate effect, or the foreign-purchases effect.

 

a. As a result of an increase in the price level, the cost of borrowing increases, which causes people to buy fewer cars.  

• [pic]

Real-balances effect

• [pic]

Interest-rate effect 

• [pic]

Foreign-purchases effect

b. When the price level decreases, restaurants become busier as more people purchase restaurant meals.  

• [pic]

Foreign-purchases effect

• [pic]

Interest-rate effect

• [pic]

Real-balances effect 

Explanation

a. Interest-rate effect: When the price level rises, the demand for money increases, which causes interest rates to rise, resulting in a decrease in investment and consumption spending, thus reducing the aggregate quantity of real GDP demanded. If the cost of borrowing, or the interest rate, increases as a result of a price level increase and people buy fewer cars, it is an example of the interest-rate effect.

b. Real-balances effect: When the price level falls, the real value of money people have rises and people are more willing or able to buy goods and services, thus increasing the aggregate quantity of real GDP demanded. Because people are consuming more restaurant meals as a direct result of the price level decreasing, it is an example of the real-balances effect.

Aggregate demand is best described as the relationship between the:

• [pic]

quantity demanded in a market and the market price.

• [pic]

quantity demanded of a good or service and the price of the good or service.

• [pic]

quantity demanded and the price.

• [pic]

quantity of real GDP demanded in the economy and the price level. 

Explanation

Aggregate demand is similar to the concept of demand; however, aggregate demand is the total quantity of all goods and services demanded in the economy. Therefore, aggregate demand represents the relationship between the quantity of real GDP demanded in the economy and the price level.

Use the graph of Remi's economy to complete the following statements.

[pic] 

a. Point B is referred to as a trough .

 

b. The movement from point A to point E is called a business cycle .

 

c. Point D is referred to as a peak .

 

d. The movement from point B to point D is called an expansion .

Explanation

A business cycle is the short-term fluctuations experienced in the economy due to changes in levels of economic activity. It occurs from the economy moving between expansions and recessions. An expansion is a phase of the business cycle characterized by increasing real GDP, income, and employment. A peak is the point in the business cycle where real GDP reaches a maximum. The peak marks the end of an expansion. A recession is a decline in real output for at least two consecutive quarters. A trough is the lowest point of economic activity in the business cycle, where real GDP reaches a minimum; the trough marks the end of a recession.

 a. At point B, the economy is at its lowest point of economic activity and is therefore at a trough.

 b. From points A to E, the economy moves through short-term fluctuations as it moves from recession to expansion back to full-employment output. This is an example of the business cycle.

 c. Point D is the maximum point of economic activity during the business cycle and is referred to as the peak.

 d. From points B to D, the economy experiences increasing economic activity for a sustained period and shows the economy during an expansion.

Determine the effect on aggregate demand for each of the scenarios described below.

 

a. All European countries experience an economic expansion, raising incomes in each of the European countries. This causes:

• [pic]

a decrease in aggregate demand, shifting the aggregate demand curve to the left.

• [pic]

a movement along the aggregate demand curve to the left, indicating a decrease in the quantity of real GDP demanded.

• [pic]

an increase in aggregate demand, shifting the aggregate demand curve to the right. 

• [pic]

a movement along the aggregate demand curve to the right, indicating an increase in the quantity of real GDP demanded.

b. The government decides to decrease the amount it spends on the military. This causes:

• [pic]

a movement along the aggregate demand curve to the left, indicating a decrease in the quantity of real GDP demanded.

• [pic]

an increase in aggregate demand, shifting the aggregate demand curve to the right.

• [pic]

a decrease in aggregate demand, shifting the aggregate demand curve to the left. 

• [pic]

a movement along the aggregate demand curve to the right, indicating an increase in the quantity of real GDP demanded.

Explanation

a. As foreign countries have higher incomes, those countries will increase spending for all goods and services, including goods and services from other countries. Therefore, they will buy more goods and services from other countries, which are exports for aggregate demand. This increase in spending will increase the amount of goods and services purchased at every price level, causing aggregate demand to increase. An increase in aggregate demand is shown as a shift in the aggregate demand curve to the right.

 b. When the government reduces total government spending, it reduces spending on goods and services at every price level, causing aggregate demand to decrease. A decrease in aggregate demand is shown as a shift in the aggregate demand curve to the left.

Complete the following statements:

 

a. In the short run, when the price level increases, the quantity of real GDP supplied will increase  and

    the aggregate supply curve will not shift  .

 

b. In the short run, some input prices are said to be sticky. This means that:

• [pic]

some firms will not be able to change the prices they charge.

• [pic]

some input prices will remain constant even as the price level changes. 

• [pic]

all prices will remain constant in the economy.

Explanation

a. In the short run, input prices tend to be sticky. When the price level increases, it causes total revenue to rise while some input costs do not increase. This makes firms more profitable, so they produce more output in the economy. As the price level increases and the quantity of real GDP supplied increases, there is a movement up and to the right on the AS curve. However, there is no change in aggregate supply—only a movement along the curve. Therefore, the aggregate supply curve will remain the same and will not shift.

 

b. When input prices are sticky, it means that some input prices will remain constant even as the price level changes. This could be due to a variety of reasons including labor contracts or material price contracts.

Which of the following events would most likely reduce aggregate demand?

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

A reduction in business and personal tax rates.

• [pic]

A reduction in the amount of existing capital stock.

• [pic]

An increase in real interest rates.

• [pic]

An increase in expected returns on investment.

Which of the following factors does not explain the inverse relationship between the price level and the total demand for output?

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

A foreign-purchases effect

• [pic]

A real-balances effect

• [pic]

A substitution effect

• [pic]

An interest-rate effect

The long-run aggregate supply curve is _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

upward-sloping and becomes steeper at output levels above the full-employment output

• [pic]

vertical

• [pic]

upward-sloping and becomes flatter at output levels above the full-employment output

• [pic]

horizontal

The aggregate demand curve or schedule shows the relationship between the total demand for output and the _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

price level

• [pic]

income level

• [pic]

interest rate

• [pic]

real GDP

The short-run version of aggregate supply assumes that product prices are _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

fixed while resource prices are flexible

• [pic]

flexible while resource prices are fixed

• [pic]

both input and product prices are flexible

• [pic]

both input and product prices are fixed

Use the following graph to answer the next question.

 

[pic]

A shift from AD2 shifts to AD1 would be consistent with what economic event in U.S. history?

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

demand-pull inflation in the late 1960s

• [pic]

cost-push inflation in the mid-1970s

• [pic]

Great Recession of 2007-2009

• [pic]

World War II in the 1940s

Use the following graph to answer the next question.

[pic]

If current output is Q1 and full-employment output is Q3, then in the long run the short aggregate supply schedule is _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

AD

• [pic]

AS3

• [pic]

AS1

• [pic]

AS2

The labels for the axes of an aggregate supply curve should be _____.

rev: 06_12_2018Multiple Choice

窗体顶端

• [pic]

real domestic output for the horizontal axis and price level for the vertical axis

• [pic]

aggregate demand for the vertical axis and real national output for the horizontal axis

• [pic]

real domestic output for the vertical axis and price level for the horizontal axis

• [pic]

real employment for the vertical axis and price level for the horizontal axis

Use the following graph to answer the next question.

 

[pic]

 

If AD1 shifts to AD2, then the equilibrium output increases from _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

Q1 to Q3 while the price level falls from P2 to P1

• [pic]

Q1 to Q2 while the price level falls from P2 to P1

• [pic]

Q1 to Q2 while the price level rises from P1 to P2

• [pic]

Q1 to Q3 while the price level rises from P1 to P2

The labels for the axes of the aggregate demand graph should be _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

real domestic output on the horizontal axis and the price level on the vertical axis

• [pic]

real domestic output on the vertical axis and the price level on the horizontal axis

• [pic]

quantity of a product on the vertical axis and the price of a product on the horizontal axis

• [pic]

price of a product on the vertical axis and quantity of a product on the horizontal axis

Use the following graph to answer the next question.

[pic]

 

 

Which of the following factors does NOT explain a movement along the AD curve?

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

The foreign purchases effect

• [pic]

The real-balances effect

• [pic]

The interest-rate effect

• [pic]

The expenditure multiplier effect

An aggregate supply curve represents the relationship between the _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

price level and the buying of real domestic output

• [pic]

real domestic output bought and the real domestic output sold

• [pic]

price level and the production of real domestic output

• [pic]

price level that producers are willing to accept and the price level buyers are willing to pay

The upward slope of the short-run aggregate supply curve is based on the assumption that _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

wages and other resource prices do respond to price level changes

• [pic]

prices of inputs are flexible while prices of outputs are fixed

• [pic]

wages and other resource prices do not respond to price level changes

• [pic]

prices of output do not respond to price level changes

A decrease in expected returns on investment will most likely shift the AD curve to the _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

left because C will decrease

• [pic]

left because Ig will decrease

• [pic]

right because C will increase

• [pic]

right because Ig will increase

Use the following graph to answer the next question.

 

[pic]

 

The short-run equilibrium for this economy is at _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

point e

• [pic]

point g

• [pic]

none of these points

• [pic]

point f

Use the following graph to answer the next question.

[pic]

If aggregate supply shifts from AS1 to AS2, then the price level will _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

increase and real domestic output will decrease

• [pic]

increase and real domestic output will increase

• [pic]

decrease and real domestic output will decrease

• [pic]

decrease and real domestic output will increase

Use the following graph, which shows an aggregate demand curve, to answer the next question,

[pic]

 

If the price level decreases from 200 to 100, the real output demanded will _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

increase by $200 billion

• [pic]

increase by $800 billion

• [pic]

decrease by $600 billion

• [pic]

decrease by $200 billion

Which of the following effects best explains the downward slope of the aggregate demand curve?

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

A multiplier effect

• [pic]

An expectations effect

• [pic]

A substitution effect

• [pic]

An interest-rate effect

Which would most likely shift the aggregate supply curve? A change in the prices of _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

foreign products

• [pic]

financial assets

• [pic]

domestic products

• [pic]

resources

In the aggregate demand-aggregate supply model, the economy’s price level is assumed to be _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

variable, just like in the aggregate expenditures model

• [pic]

constant, unlike in the aggregate expenditures model

• [pic]

variable, unlike in the aggregate expenditures model

• [pic]

constant, just like in the aggregate expenditures model

An increase in personal income taxes will cause a(n) _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

decrease (or shift left) in aggregate demand

• [pic]

decrease in the quantity of real output demanded (or movement up along AD)

• [pic]

increase (or shift right) in aggregate demand

• [pic]

increase in the quantity of real output demanded (or movement down along AD)

The economy's long-run AS curve assumes that wages and other resource prices _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

are relatively inflexible both upward and downward

• [pic]

rise and fall more rapidly than the price level

• [pic]

are flexible upward but inflexible downward

• [pic]

eventually rise and fall to match upward or downward changes in the price level

The long-run aggregate supply analysis assumes that _____.

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

both input and product prices are variable

• [pic]

both input and product prices are fixed

• [pic]

input prices are fixed while product prices are variable

• [pic]

input prices are variable while product prices are fixed

Which of the following would not shift the aggregate demand curve?

rev: 06_12_2018

Multiple Choice

窗体顶端

• [pic]

Income tax rates

• [pic]

Foreign-exchange rates

• [pic]

Real interest rates

• [pic]

Productivity rates

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

窗体底端

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download