Discuss when the interest rate in an economy increases

Multiple choice questions:

Question 1
A ________________________________ is calculated as a flat percentage of income earned, regardless of level of income.
a) proportional tax
b) progressive tax
c) regressive tax
d) estate and gift tax

Question 2
When increasing oil prices cause aggregate supply to shift to the left, then:
a) unemployment and inflation increase.
b) unemployment and inflation decrease.
c) unemployment decreases and inflation increases.
d) unemployment increases and inflation decreases.

Question 3
If South Dakota's governor reports a budget surplus in 2011, that state government likely:
a) increased the proportional tax level.
b) increased the corporate income tax rate.
c) received more in taxes than it spent in that year.
d) equalized spending and taxes in that year.

Question 4
If a country's GDP increases, but its debt decreases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes.
a) decrease because its debt decreased
b) increase or decrease
c) decrease
d) increase because GDP increased

Question 5
A __________________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes.
a) regressive tax
b) excise tax
c) proportional tax
d) progressive tax

Question 6
By June, 2010, the U.S. government owed $13.6 trillion dollars ________________ that, over time, has remained unpaid.
a) from decreases in corporate tax
b) in accumulated government debt
c) from decreases in income tax
d) from decreases in excise tax

Question 7
In 2010, Microsoft will pay corporate income tax to the federal government based on the company's __________________.
a) excise profits
b) proportional tax rate
c) optional tax rate
d) corporate profits

Question 8
When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting:
a) fiscal policy.
b) progressive fiscal policy.
c) regressive fiscal policy.
d) discretionary fiscal policy.

Question 9
During a recession, if a government uses an expansionary fiscal policy to increase GDP, the:
a) aggregate supply curve will shift to the left.
b) aggregate supply curve will shift to the right.
c) aggregate demand curve will shift to the right.
d) aggregate demand curve will shift to the left.
Chapter 17 problems

Question 10
A government collects $700 billion annually in tax revenue. Each year it allocates $130 billion to interest payments that it must pay on its accumulated debt. What percentage of annual tax revenue is allocated to make these interest payments?
a) 27.58%
b) 28.75%
c) 17.15%
d) 18.57%

Question 11
If the state of Washington's government collects $75 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be a:
a) budget deficit.
b) decrease in proportional taxes.
c) decrease in payroll tax.
d) budget surplus.

Question 12
If government tax policy requires Jane to pay $25,000 in taxes on annual income of $200,000 and Mary to pay $10,000 in tax on annual income of $100,000, then the tax policy is:
a) regressive.
b) optional.
c) progressive.
d) proportional.

Question 13
A ___________________________________ can lead to disruptive economic patterns and heavy strains on a country's banking and financial system.
a) prolonged period of trade surpluses
b) prolonged period of budget surpluses
c) sustained pattern of large budget deficits
d) sustained pattern of large trade deficits

Question 14
In the U.S. economy, the offsetting effects of private saving compared to government borrowing are typically noted as being represented by which of the following ratios?
a) much less than one-to-one
b) slightly more than two-to-one
c) much more than two-to-one
d) slightly less than one-to-one

Question 15
An additional investment in human capital, especially for the low-income nations of the world, will likely directly increase which of the following?
a) consumer orientated spin-offs
b) increased levels of R&D spending
c) highly qualified teachers
d) productivity and economic growth

Question 16
A reduction in government borrowing can:
a) give private investment an opportunity to expand.
b) crowd out private investment in human capital.
c) increase the interest rate.
d) decrease the incentive to invest.

Question 17
In most developed countries, the government plays a large role in society's investment in human capital through _________________________.
a) the education system
b) tax incentives
c) direct spending
d) private sector R&D

Question 18
When a business firm makes an investment in physical capital, what is that investment subject to?
a) political orientated incentives
b) economic output and productivity
c) the discipline of the market
d) state and local government incentives

Question 19
A ____________________________ is one economic mechanism by which government borrowing can crowd out private investment.
a) higher interest rate
b) deficit decrease
c) larger trade surplus
d) smaller trade surplus

Question 20
If David Ricardo's theory holds completely true, then any change in budget deficits or budget surpluses would be completely offset by which of the following?
a) a corresponding change in private saving
b) a sustained pattern of trade imbalances
c) a dependence on inflows of capital
d) a change in currency exchange rates

Question 21
A prolonged period of budget deficits may lead to ___________________.
a) lower inflation
b) lower economic growth
c) increasing exchange rates
d) outflows of financial capital abroad

Question 22
When the interest rate in an economy increases, it is likely the result of either:
a) a decrease in the government's budget surplus or an increase in its budget deficit.
b) an increase in the government budget surplus or its budget deficit.
c) a decrease in the government budget surplus or its budget deficit.
d) an increase in the government budget surplus or a decrease in its budget deficit.

Question 23
Suppose you are analyzing data for an economy in which Ricardian neutrality holds true. If the budget deficit increases by 50, then:
a) private savings will decrease by 50
b) private savings will increase by 50
c) investment will decrease by 50
d) investment will increase by 50

Question 24
If a government's budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, causing a threat of an inflationary increase in price levels, then the central bank may react with:
a) a loose monetary policy.
b) a discretionary monetary policy.
c) an expansionary monetary policy.
d) a contractionary monetary policy.

Question 25
If the U.S. economy is producing at a level that is substantially less than potential GDP and the government's budget deficits are increasing aggregate demand, then ____________________________ is not much of a danger.
a) an inflationary increase in the price level
b) international financial investment
c) the central bank's contractionary monetary policy
d) a tight monetary policy

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