Question 1

According to the textbook, the country with the highest debt-to-GDP (gross domestic product)  ratio in the world, in terms of publicly held debt, is:

Accepted Answer

A)   the United States.
B)   Greece.
C)   Italy.
D)   France.
E)   Japan.F) A) and C)
G) B) and D)

Question 2

Why are interest payments considered mandatory spending in the federal budget?

Accepted Answer

A)   They are considered mandatory spending because such payments are fixed at the time of borrowing and cannot be altered.
B)   They are considered mandatory spending because the interest rates on federal debt are extremely high, and failing to pay accumulated interest would dramatically increase the total debt.
C)   They are considered mandatory spending because not making such payments could endanger the government's credit rating, which could make it harder to borrow going forward.
D)   They are considered mandatory spending because interest payments constitute the largest part of yearly government spending.
E)   They are considered mandatory spending because most interest payments go to American households and those citizens depend on the interest payments for their livelihoods.F) D) and E)
G) C) and D)

Question 3

Why is it important to distinguish between deficits and debt?

Accepted Answer

Budget deficits refer to revenue shortfa...

Question 4

Suppose you are offered a $5,000 raise at work. Your current income tax rate is 25%. Your marginal income tax rate is 28%. Your average tax rate is 20%. The additional income tax you owe to the federal government (assuming you stay in the same rate bracket)  if you accept the job will be:

Accepted Answer

A)   $1,250.
B)   $1,400.
C)   $1,000.
D)   $250.
E)   $150.F) C) and D)
G) None of the above

Question 5

Which country holds the most U.S. debt?

Accepted Answer

A)   China
B)   United Kingdom
C)   Japan
D)   Germany
E)   United StatesF) A) and B)
G) A) and C)

Question 6

Why does the federal debt tend to increase during periods of recession?

Accepted Answer

A)   Economic activity decreases, which decreases revenues and increases outlays.
B)   Economic activity decreases, which decreases revenues and decreases outlays.
C)   Economic activity increases, which increases revenues and increases outlays.
D)   Economic activity increases, which increases revenues and decreases outlays.
E)   Economic activity increases, which decreases revenues and increases outlays.F) A) and D)
G) D) and E)

Question 7

The most relevant tax rate for making decisions about earning additional income is the:

Accepted Answer

A)   marginal tax rate.
B)   income tax rate.
C)   average tax rate.
D)   sales tax rate.
E)   property tax rate.F) B) and E)
G) D) and E)

Question 8

In recent years, the growth in foreign-owned debt has:

Accepted Answer

A)   substantially weakened the U.S. economy.
B)   helped the U.S. economy by keeping the supply of loanable funds higher than it would be otherwise.
C)   harmed the U.S. economy by driving up the cost of borrowing.
D)   harmed the U.S. economy by sending jobs overseas.
E)   not affected the U.S. economy.F) C) and E)
G) B) and D)

Question 9

The highest marginal tax rate in U.S. history was:

Accepted Answer

A)   100%.
B)   98%.
C)   96%.
D)   94%.
E)   92%.F) D) and E)
G) B) and C)

Question 10

Assuming all of the following are in your personal monthly budget, your _____________ payment is considered a discretionary outlay.

Accepted Answer

A)   mortgage (or rent, if you do not own a home) 
B)   car loan
C)   student loan
D)   electric bill
E)   boat loanF) B) and D)
G) B) and C)

Question 11

A U.S. federal government budget deficit occurs when:

Accepted Answer

A)   government revenue exceeds outlays.
B)   government outlays exceed revenue.
C)   government outlays equal revenue.
D)   the United States borrows money from foreign countries.
E)   the United States lends money to foreign countries.F) B) and E)
G) C) and D)

Question 12

Why is a budget deficit not necessarily a bad thing?

Accepted Answer

A)   Governments should always spend more than they collect in revenue to encourage economic growth.
B)   Saving money is not something a government should do.
C)   As long as the government is paying for things it needs, it is appropriate to spend more than is collected in tax revenue.
D)   Deficits may allow for tax rate stability during recessions.
E)   Because future generations will be better equipped to pay back any accumulated deficits.F) D) and E)
G) A) and E)

Question 13

Why is means-testing not likely to be a long-term solution for the rising costs associated with Medicare and Social Security benefits? Fully explain your answer.

Accepted Answer

Requiring means-testing would punish tho...

Question 14

The current tax rate for Social Security is:

Accepted Answer

A)   7.65% for the employee and 7.65% for the employer, if not self-employed.
B)   7.65%, if self-employed.
C)   6.2% for the employee and 6.2% for the employer, if not self-employed.
D)   1.45% for the employee and 1.45% for the employer, if not self-employed.
E)   12.4%, if self-employed.F) B) and C)
G) B) and E)

Question 15

Transfer payments refer to funds that are transferred from one group in society to another group:

Accepted Answer

A)   so these payments have no impact on the government budget deficit.
B)   so these payments have no impact on the government debt.
C)   so these payments are unfair to those who lose money in the transfer.
D)   and these payments represent a growing share of U.S. federal outlays.
E)   and these payments remain approximately constant over time.F) A) and E)
G) B) and D)

Question 16

The poorest 40% of households in the United States:

Accepted Answer

A)   do not contribute their fair share of income taxes.
B)   contribute the vast majority of all income taxes.
C)   are forced to pay too much income tax despite their low incomes.
D)   pay negative income taxes because of tax credits and income assistance.
E)   contribute an amount of income taxes proportionate to what they consume in government services.F) None of the above
G) A) and B)

Question 17

Refer to the following table to answer the next  questions: 
-Using the table, what is the marginal income tax rate of a $5,000 raise for someone who currently makes $67,000 per year?

Accepted Answer

A)   10%
B)   15%
C)   25%
D)   28%
E)   0%F) A) and B)
G) C) and D)

Question 18

Budget deficits tend to:

Accepted Answer

A)   increase over time.
B)   decrease over time.
C)   increase during recessions.
D)   increase during expansions.
E)   grow as the economy grows and shrink as the economy shrinks.F) A) and E)
G) All of the above

Question 19

Refer to the following table to answer the next  questions: 
-Using the table, what is the average tax rate for someone who makes $67,000 per year?

Accepted Answer

A)   10.0%
B)   14.2%
C)   16.7%
D)   25.0%
E)   19.1%F) B) and C)
G) A) and E)

Question 20

Excise taxes are levied on:

Accepted Answer

A)   property that is gifted to others.
B)   imports.
C)   individual income.
D)   corporate income.
E)   specific goods or commodities.F) A) and C)
G) B) and E)

Exam 15: Federal Budgets: the Tools of Fiscal Policy

Why is a budget deficit not necessarily a bad thing?

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The highest marginal tax rate in U.S. history was:

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The current tax rate for Social Security is:

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According to the textbook, the country with the highest debt-to-GDP (gross domestic product) ratio in the world, in terms of publicly held debt, is:

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Why does the federal debt tend to increase during periods of recession?

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The most relevant tax rate for making decisions about earning additional income is the:

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The poorest 40% of households in the United States:

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Assuming all of the following are in your personal monthly budget, your _____________ payment is considered a discretionary outlay.

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Why is means-testing not likely to be a long-term solution for the rising costs associated with Medicare and Social Security benefits? Fully explain your answer.

Correct AnswerverifiedRequiring means-testing would punish tho...View AnswerShow Answer

Transfer payments refer to funds that are transferred from one group in society to another group:

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In recent years, the growth in foreign-owned debt has:

Correct AnswerverifiedShow Answer

Why is it important to distinguish between deficits and debt?

Correct AnswerverifiedBudget deficits refer to revenue shortfa...View AnswerShow Answer

Refer to the following table to answer the next questions: -Using the table, what is the marginal income tax rate of a $5,000 raise for someone who currently makes $67,000 per year?

Correct AnswerverifiedShow Answer

Why are interest payments considered mandatory spending in the federal budget?

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A U.S. federal government budget deficit occurs when:

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Excise taxes are levied on:

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Refer to the following table to answer the next questions: -Using the table, what is the average tax rate for someone who makes $67,000 per year?

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Budget deficits tend to:

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Suppose you are offered a $5,000 raise at work. Your current income tax rate is 25%. Your marginal income tax rate is 28%. Your average tax rate is 20%. The additional income tax you owe to the federal government (assuming you stay in the same rate bracket) if you accept the job will be:

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Which country holds the most U.S. debt?

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Requiring means-testing would punish tho...
View Answer

Correct Answer
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Budget deficits refer to revenue shortfa...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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