1. Define average tax rate
Define marginal tax rate
2. Define progressive tax
Define regressive tax
Define proportional tax
3. Define indexation
4. Define Nominal Gross Domestic Product (GDP)
Define Real Gross Domestic Product (GDP)
5. Define business investment spending
6. Briefly explain how the official unemployment rate is calculated.
7. Define frictional unemployment
Define cyclical unemployment
Define structural unemployment
Define “full employment”
1. Assume that there are only two goods: A and B
In the base year, Quantity Price
A 10 $1
B 10 $4
In the current year, Quantity Price
A 20 $ 5
B 25 $20
The Consumer Price Index (CPI) for the current year is:
a. 50
b. 100
c. 200
d. 500
e. 600
2. Which of the following groups is most hurt by unexpected inflation?
a. workers with cost of living adjustments in their labor contracts
b. homeowners
c. people with large debts to pay for their homes and cars
d. people with large retirement savings held in savings accounts
3. If the nominal interest rate is 5% and the inflation rate is 2%, the real interest rate is:
a. 2%
b. 3%
c. 5%
d. 7%
e. 2 ½%
4. For which of the following reasons might inflation cause Real GDP to grow slower than it otherwise would?
a. Inflation makes everyone poorer
b. Inflation reduces the value of consumer debt
c. Inflation increases business investment spending
d. Inflation decreases savings in financial form
5. Disposable Income is equal to:
a. National Income c. National Income Minus Taxes
b. Real GDP
c. National Income Minus Taxes
d. National Income Minus Taxes Plus Transfers
6. Assume that Potential Real GDP equals $10,000. National Income is therefore $10,000. Of this, consumers will pay $2,000 in taxes, save $1,000, and spend $7,000 on consumer goods. Business Investment spending is $2000. In order to avoid recessions and inflation (to have equilibrium), the government should have a:
a. balanced budget
b. budget deficit of $1000
c. budget surplus of $1000
d. budget deficit of $2000
7. According to Keynes, when the Great Depression started, the government should have:
a. done nothing
b. decreased the money supply
c. had a large increase in government spending
d. enacted high tariffs, such as the Smoot-Hawley Tariff
8. If the government lowers taxes by $10 billion, the Real GDP will rise by
a. more than $10 billion
b. less than $10 billion
c. exactly $10 billion
9. Which of the following is an automatic stabilizer?
a. unemployment benefits
b. spending on education
c. defense spending
d. net interest
10. “Crowding out” means that
a. a government budget deficit lowers interest rates and causes investment spending to rise
b. an increase in marginal tax rates lowers production
c. a government budget deficit raises interest rates and causes investment spending to fall
d. a government budget deficit raises American exports and lowers American imports
Answers: D D B D D C C A A C
Define marginal tax rate
2. Define progressive tax
Define regressive tax
Define proportional tax
3. Define indexation
4. Define Nominal Gross Domestic Product (GDP)
Define Real Gross Domestic Product (GDP)
5. Define business investment spending
6. Briefly explain how the official unemployment rate is calculated.
7. Define frictional unemployment
Define cyclical unemployment
Define structural unemployment
Define “full employment”
1. Assume that there are only two goods: A and B
In the base year, Quantity Price
A 10 $1
B 10 $4
In the current year, Quantity Price
A 20 $ 5
B 25 $20
The Consumer Price Index (CPI) for the current year is:
a. 50
b. 100
c. 200
d. 500
e. 600
2. Which of the following groups is most hurt by unexpected inflation?
a. workers with cost of living adjustments in their labor contracts
b. homeowners
c. people with large debts to pay for their homes and cars
d. people with large retirement savings held in savings accounts
3. If the nominal interest rate is 5% and the inflation rate is 2%, the real interest rate is:
a. 2%
b. 3%
c. 5%
d. 7%
e. 2 ½%
4. For which of the following reasons might inflation cause Real GDP to grow slower than it otherwise would?
a. Inflation makes everyone poorer
b. Inflation reduces the value of consumer debt
c. Inflation increases business investment spending
d. Inflation decreases savings in financial form
5. Disposable Income is equal to:
a. National Income c. National Income Minus Taxes
b. Real GDP
c. National Income Minus Taxes
d. National Income Minus Taxes Plus Transfers
6. Assume that Potential Real GDP equals $10,000. National Income is therefore $10,000. Of this, consumers will pay $2,000 in taxes, save $1,000, and spend $7,000 on consumer goods. Business Investment spending is $2000. In order to avoid recessions and inflation (to have equilibrium), the government should have a:
a. balanced budget
b. budget deficit of $1000
c. budget surplus of $1000
d. budget deficit of $2000
7. According to Keynes, when the Great Depression started, the government should have:
a. done nothing
b. decreased the money supply
c. had a large increase in government spending
d. enacted high tariffs, such as the Smoot-Hawley Tariff
8. If the government lowers taxes by $10 billion, the Real GDP will rise by
a. more than $10 billion
b. less than $10 billion
c. exactly $10 billion
9. Which of the following is an automatic stabilizer?
a. unemployment benefits
b. spending on education
c. defense spending
d. net interest
10. “Crowding out” means that
a. a government budget deficit lowers interest rates and causes investment spending to rise
b. an increase in marginal tax rates lowers production
c. a government budget deficit raises interest rates and causes investment spending to fall
d. a government budget deficit raises American exports and lowers American imports
Answers: D D B D D C C A A C
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