ECN Exam 3 Questions with 100% Correct Answers New Update
What's the difference between a budget deficit, a balanced budget, and a budget surplus? - Answer- When a government spends more than it collects in taxes, it is said to have a budget deficit. When a government collects more in taxes than ...
ECN Exam 3 Questions with 100%
Correct Answers New Update
What's the difference between a budget deficit, a balanced budget, and a budget
surplus? - Answer- When a government spends more than it collects in taxes, it is said
to have a budget deficit. When a government collects more in taxes than it spends, it is
said to have a budget surplus. If government spending and taxes are equal, it is said to
have a balanced budget.
Have spending and taxes by state and local governments in the United States had a
generally upward or downward trend in the last few decades? - Answer- Upward
What are the main categories of U.S. federal government taxes? - Answer- 1) Individual
income taxes
2) Payroll taxes
3) Corporate income tax
4) Excise tax
5) Estate and gift tax
Whats the difference between a progressive tax, a proportional tax, and a regressive
tax? - Answer- A progressive tax is one, like the federal income tax, where those with
higher incomes pay a higher share of income in taxes than those with lower incomes. A
proportional tax is one, like payroll tax for Medicare, where everyone pays the same
share of income in taxes regardless of income level, like the payroll tax for Medicare. A
regressive tax, is one, like the payroll tax that supports Social Security, where those
with high income pay a lower share of income in taxes than those with lower incomes.
What has been the general pattern of U.S. budget deficits in recent decades? - Answer-
For most of the twentieth century, the U.S. government took on debt during wartime and
then paid down that debt slowly during peacetime.
Whats the difference between a budget deficit and the government debt? - Answer- A
budget deficit is when the government spends more than it collects in taxes.
Government debt is the sum of budget deficits and budget surpluses over time.
Whats the difference between expansionary fiscal policy and contractionary fiscal
policy? - Answer- Expansionary fiscal policy increases the level of aggregate demand,
either through increases in government spending or through reductions in taxes.
Contractionary fiscal policy decreases the level of aggregate demand, either through
cuts in government spending or increases in taxes.
, Under what general macroeconomic circumstances might a government use
expansionary fiscal policy? Contractionary fiscal policy? - Answer- Expansionary fiscal
policy is most appropriate when an economy is in recession and producing below its
potential GDP. Contractionary fiscal policy is most appropriate hen an economy is
producing above its potential GDP.
Whats the difference between discretionary fiscal policy and automatic stabilizers? -
Answer- Discretionary fiscal policy occurs when the government enacts taxation or
spending changes in response to economic events. Automatic stabilizers are taxing and
spending mechanisms that by their design shift in response to economic events without
any further legislation.
Why do automatic stabilizers function "automatically"? - Answer- They function
automatically because they ned no further change in legislation.
What are some practical weaknesses of discretionary fiscal policy? - Answer- 1)
expansionary fiscal policy can raise interest rates, which tends to reduce the
expansionary impact of the policy
2) there are long and variable time lags in enacting fiscal policy and waiting for it to have
an effect
3) the impact of temporary fiscal policy is smaller than the impact of permanent fiscal
policy
4) fiscal policy cannot push economic output above the potential GDP level of output
5) it may be hard to persuade politicians of the merits of countercyclical fiscal policy
What are some of the arguments for and against a requirement that the federal
government budget be balanced every year? - Answer- Laws requiring a balanced
budget every year would inhibit both automatic stabilizers and discretionary fiscal policy,
as well as long-term uses of fiscal policy to increase national saving or to invest in a
nations future.
What are the three functions served by money? - Answer- 1) money serves as a
medium of exchange 2) money serves as a unit of account
3) money serves as a store of value
How does the existence of money simplify the process of buying and selling? - Answer-
Money simplifies the process of buying and selling by being readily available, instead of
people having to barter with each other for a good or service.
What is the double coincidence of wants? - Answer- Each party has a specific good or
service that the other desires.
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