1. Assuming that income tax is the only source of revenue for the government, with a tax rate of 10%, an aggregate income of $500 billion, and government outlays of $70 billion, which of the following is true of the government's budget?

a. None of the above; more information is needed to calculate the budget's surplus or deficit.
b. The government has a budget surplus of $20 billion.
c. The government has a budget deficit of $20 billion.
d. The government has a budget surplus of $430 billion.

2. When does a balanced budget occur?

a. when the rate of increase in government spending equals the rate of increase in government tax revenue collections
b. when government spending exceeds government tax revenues
c. when government spending equals government tax revenues

3. If the government for the state of Washington collects $65.8 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be:

a. a budget surplus.
b. a budget deficit.
c. an increase in payroll tax.
d. an increase in excise tax.

4. If South Dakota's governor reports a budget surplus in 2011, that state government likely:

a. equalized spending and taxes in that year.
b. increased the corporate income tax rate.
c. received more in taxes than it spent in that year.
d. increased the proportional tax level.

5. Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing?

a. monetary policies
b. financial policies
c. economic policies
d. fiscal policies

6. The government can use ________ in the form of ________ to increase the level of aggregate demand in the economy.

a. a contractionary fiscal policy; a reduction in taxes
b. an expansionary fiscal policy; an increase in corporate taxes
c. a contractionary fiscal policy; an increase in taxes
d. an expansionary fiscal policy; an increase in government spending

7. If an economy moves into a recession, causing that country to produce less than potential GDP, then:

a. tax revenue and government spending will be lower because of automatic stabilizers.
b. tax revenue and government spending will be higher because of automatic stabilizers.
c. automatic stabilizers will cause tax revenue to increase and government spending to decrease.
d. automatic stabilizers will cause tax revenue to decrease and government spending to increase.

8. If Canada's economy moves into an expansion while its economy is producing more than potential GDP, then:

a. government spending and tax revenue will increase because of automatic stabilizers.
b. automatic stabilizers will increase government spending and decrease tax revenue.
c. government spending and tax revenue will decrease because of automatic stabilizers.
d. automatic stabilizers will decrease government spending and increase tax revenue.

9. The government can use ________ in the form of ________ to increase the level of aggregate demand in the economy.

a. an expansionary fiscal policy; an increase in corporate taxes
b. an expansionary fiscal policy; an increase in government spending
c. a contractionary fiscal policy; a reduction in taxes
d. a contractionary fiscal policy; an increase in taxes

10. If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used?

a. Discretionary
b. Contractionary
c. Expansionary
d. Standardized

11. If the economy is producing less than its potential GDP, ________ will show a smaller deficit than the actual deficit.

a. the standardized employment deficit
b. the automatic stabilizers
c. discretionary fiscal policy
d. expansionary fiscal policy

12. When a country's economy is producing at a level that exceeds its potential GDP, the standardized employment deficit will show a ________ than the actual deficit..

a. Surplus
b. larger deficit
c. smaller surplus
d. smaller deficit

13. Assume that laws have been passed that require the federal government to run a balanced budget. During a recession, the government will want to implement ________, but may be unable to do so because such a policy would ________.

a. expansionary fiscal policy; lead to a budget deficit
b. contractionary fiscal policy; lead to a budget deficit
c. discretionary fiscal policy; lead to a budget surplus
d. contractionary fiscal policy; lead to a budget surplus

14. A decrease in aggregate demand as a consequence of government decisions to alter its levels of expenditure and revenues involves which of the following?

a. Increases in spending and decreases in tax rates and collections
b. Decreases in tax rates, collections, and spending
c. Decreases in spending
d. Increases in tax rates and collections and decreases in spending

15. If an economy's potential GDP is at $ 300 billion, but it has a real GDP of $ 350 billion, what should the government do in order to move the economy to the level of potential GDP?

a. Decrease taxes and decrease government expenditure.
b. Increase taxes and decrease government expenditure.
c. Increase taxes and increase government expenditure.
d. Decrease taxes and increase government expenditure.

16. Which of the following can the government use as a tool of fiscal policy if it wants to decrease the level of real GDP in the economy?

a. A decrease in government expenditure
b. An increase in government expenditure
c. A cut in taxes