Question 1
Which of the following transactions best represents the government making a transfer payment to a household or business?
multiple choice
The federal government’s Supplemental Nutritional Assistance Program assists low-income families with purchasing food.
The federal government’s Internal Revenue Service hires extra accountants during the tax season to audit tax returns.
The state government’s Office of Motor Vehicles imposes an annual licensing fee for all in-state vehicles.
The local government’s Department of Parks and Recreation operates a local pool for residents in the summer.
Question 2
Which of the following descriptions is most representative of the mix of revenues and expenditures of the federal government?
multiple choice
Revenue is predominantly from property taxes but may include sales taxes or income taxes. Expenditures include investments in education and public welfare.
Revenue is predominantly from sales taxes and may include personal or corporate income taxes. Expenditures include investments in education and infrastructure.
Revenue is predominantly from income taxes and payroll taxes. Expenditures include income security and interest on the national debt.
Revenue is predominantly from excise taxes and property taxes. Expenditures include investments in infrastructure and national defense.
Question 3
How is the public debt calculated?
rev: 06_21_2018
Multiple Choice
By subtracting current government spending from current government tax revenues
By summing the annual government purchases over time
By subtracting the government’s total liabilities from its total assets
By summing the annual difference between tax revenues and government spending over the years
Question 4
Which of the following is not a significant source of revenue for the U.S. federal government?
Multiple Choice
Personal income taxes
Corporate income taxes
Property taxes
Payroll taxes
Question 5
Which one of the following is not an excise tax of the federal government?
Multiple Choice
Gasoline tax
General sales tax
Correct
Alcoholic beverage tax
Tobacco tax
Question 6
A federal budget deficit exists when federal government
Multiple Choice
taxation is decreasing in a given year.
spending is increasing in a given year.
assets are less than liabilities in a given year.
spending exceeds tax revenues in a given year.
Question 7
Which of the following is the largest expenditure item of local governments?
Multiple Choice
Highways
Public safety
Welfare
Education
Question 8
A tax is regressive if it
Multiple Choice
takes a higher percentage of income as income increases.
takes the same percentage of income regardless of income level.
is levied on consumers.
takes a smaller percentage of income as income increases.
Question 9
Many states in the U.S. acquire significant amounts of funds from the following, except
Multiple Choice
property taxes.
state-run lotteries.
personal income taxes.
grants from the Federal government.
Question 10
One important reason why the United States government is not likely to go bankrupt even with a large public debt is that it has
Multiple Choice
the power to print money to finance the debt.
a strong military to protect it from creditors.
the capacity to pay off its outstanding debt with gold.
the ability to decrease interest rates and increase investment spending.
Question 11
The circular flow model with government included would show that government
Multiple Choice
obtains revenues in the product market and uses it to cover costs in the resource market.
produces goods and services and sells them in the product market to generate net taxes.
controls economic resources and sells them in the resource market.
provides goods and services to businesses and households and pays for them with net taxes.
Question 12
A public debt that is owed to foreigners can be burdensome because
Multiple Choice
the payment of interest will conflict with a nation’s foreign aid programs.
the payment of interest reduces the volume of goods and services available for domestic uses.
the payment of interest will necessarily have a deflationary effect on prices in the paying nation.
foreign interest rates are persistently higher than domestic interest rates.
Question 13
Which of the following is not a government activity that is involved in public finance?
Multiple Choice
Running government-owned enterprises such as hospitals, utilities, and lotteries.
Regulating the activities of firms in the financial sector of the economy.
Providing public goods and services such as national defense and education.
Redistributing income through various taxes and income-transfer payments.
Question 14
The Social Security tax is regressive because
Multiple Choice
the Social Security tax rate applied does not rise with the salary level.
each individual must pay a set percentage of his or her income in Social Security taxes.
as income increases, the Social Security tax rate increases at a decreasing rate.
no Social Security tax is collected for incomes in excess of a “cap” income level.
Question 15
Which of the following is the largest expenditure item of state governments?
Multiple Choice
Public welfare
Highways
Education
Health and hospitals
Question 16
Aggregate demand is best described as the relationship between the:
multiple choice
quantity demanded of a good or service and the price of the good or service.
quantity demanded in a market and the market price.
quantity of real GDP demanded in the economy and the price level.
quantity demanded and the price.
Question 17
For each of the following scenarios, determine the effect on aggregate supply.
a. There is an unexpected decrease in oil prices. This causes:
multiple choice 1
a movement along the aggregate supply curve to the right, indicating an increase in the quantity of real GDP supplied.
a movement along the aggregate supply curve to the left, indicating a decrease in the quantity of real GDP supplied.
an increase in aggregate supply, shifting the aggregate supply curve to the right.
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:
multiple choice 2
a movement along the aggregate supply curve to the right, indicating an increase in the quantity of real GDP supplied.
a movement along the aggregate supply curve to the left, indicating a decrease in the quantity of real GDP supplied.
a decrease in aggregate supply, shifting the aggregate supply curve to the left.
an increase in aggregate supply, shifting the aggregate supply curve to the right.
Question 18
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:
multiple choice 1
an increase in aggregate demand, shifting the aggregate demand curve to the right.
a decrease in aggregate demand, shifting the aggregate demand curve to the left.
a movement along the aggregate demand curve to the left, indicating a decrease in the quantity of real GDP demanded.
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:
multiple choice 2
a decrease in aggregate demand, shifting the aggregate demand curve to the left.
an increase in aggregate demand, shifting the aggregate demand curve to the right.
a movement along the aggregate demand curve to the right, indicating an increase in the quantity of real GDP demanded.
a movement along the aggregate demand curve to the left, indicating a decrease in the quantity of real GDP demanded.
Question 19
The long-run aggregate supply curve is vertical because:
multiple choice
firms cannot change prices or input prices in the long run.
some input prices are sticky in the long run.
all input prices are flexible in the long run.
all input prices are sticky in the long run.
Question 20
For each of the examples below, determine the effect on aggregate demand.
a. In order to reduce the deficit, the government decides to increase the level of taxes in the economy. This causes:
multiple choice 1
an increase in aggregate demand, shifting the aggregate demand curve to the right.
a movement along the aggregate demand curve to the right, indicating an increase in the quantity of real GDP demanded.
a movement along the aggregate demand curve to the left, indicating a decrease in the quantity of real GDP demanded.
a decrease in aggregate demand, shifting the aggregate demand curve to the left.
b. The economy experiences a sustained expansion in stock prices for the majority of companies in the country. This causes:
multiple choice 2
a movement along the aggregate demand curve to the left, indicating a decrease in the quantity of real GDP demanded.
a movement along the aggregate demand curve to the right, indicating an increase in the quantity of real GDP demanded.
a decrease in aggregate demand, shifting the aggregate demand curve to the left.
an increase in aggregate demand, shifting the aggregate demand curve to the right.
Question 21
Which would most likely shift the aggregate supply curve? A change in the prices of _____.
Multiple Choice
foreign products
domestic products
financial assets
resources
Question 22
Use the following graph to answer the next question.
When output increases from Q1 and the price level decreases from P1, this change will _____.
Multiple Choice
be caused by a shift in the aggregate supply curve from AS1 to AS3
result in a movement along the aggregate demand curve from e1 to e2
result in a movement along the aggregate demand curve from e3 to e1
be caused by a shift in the aggregate supply curve from AS1 to AS2
Question 23
In the aggregate demand-aggregate supply model, the economy’s price level is assumed to be _____.
Multiple Choice
variable, unlike in the aggregate expenditures model
constant, just like in the aggregate expenditures model
variable, just like in the aggregate expenditures model
constant, unlike in the aggregate expenditures model
Question 24
The aggregate demand curve or schedule shows the relationship between the total demand for output and the _____.
Multiple Choice
price level
income level
real GDP
interest rate
Question 25
An increase in aggregate demand is most likely to be caused by a(n) _____.
Multiple Choice
decrease in government spending
decrease in the tax rates on household income
decrease in expected returns on investment
increase in real interest rates
Question 26
An increase in personal income taxes will cause a(n) _____.
Multiple Choice
increase (or shift right) in aggregate demand
decrease (or shift left) in aggregate demand
increase in the quantity of real output demanded (or movement down along AD)
decrease in the quantity of real output demanded (or movement up along AD)
Question 27
Which of the following events would most likely reduce aggregate demand?
Multiple Choice
A reduction in the amount of existing capital stock.
An increase in real interest rates.
A reduction in business and personal tax rates.
An increase in expected returns on investment.
Question 28
Which would most likely increase aggregate supply?
Multiple Choice
An increase in productivity
A decrease in personal income taxes
A decrease in business subsidies
An increase in the prices of imported products
Question 29
Use the following table which shows the aggregate demand and aggregate supply schedules for a hypothetical economy to answer the next question.
Real Domestic Output Demanded (in billions) Price Level (index value) Real Domestic Output Supplied (in billions)
$3,000 350 $9,000
4,000 300 8,000
5,000 250 7,000
6,000 200 6,000
7,000 150 5,000
8,000 100 4,000
The equilibrium price and output levels will be _____.
Multiple Choice
250 and $7,000
200 and $5,000
300 and $8,000
200 and $6,000
Question 30
The long-run aggregate supply curve is _____.
Multiple Choice
upward-sloping and becomes flatter at output levels above the full-employment output
upward-sloping and becomes steeper at output levels above the full-employment output
horizontal
vertical
