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Date
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1
Econ
102
–
Spring
2017
–
Professor
Forbes
‐
Test
1
Instructions:
Please
fill
in
your
answers
with
pen
or
pencil
using
the
Scantron
form.
There
are
50
questions
on
10
pages
in
this
test.
You
may
use
a
basic
calculator.
No
other
aides
are
allowed.
Good
luck!
1)
If
the
total
revenue
collected
by
the
federal
government
in
a
particular
year
is
$1.2
billion
and
the
total
amount
spent
by
the
government
during
this
year
is
$3.8
billion,
what
is
the
budget
deficit?
A)
$1.6
billion
B)
$2.6
billion
C)
$2.2
billion
D)
$5
billion
2)
A
restaurant
charges
its
customers
12%
of
the
total
food
price
as
tax.
This
is
an
example
of
________
tax.
A)
payroll
B)
wealth
C)
property
D)
sales
3)
A
________
tax
system
is
one
in
which
households
pay
the
same
percentage
of
their
incomes
in
taxes
regardless
of
their
income
level.
A)
progressive
B)
regressive
C)
proportional
D)
complementary
4)
The
imposition
of
all
taxes,
except
a
lump
sum
tax,
leads
to
________.
A)
an
increase
in
consumer
surplus
B)
an
increase
in
producer
surplus
C)
a
fall
in
the
price
of
the
good
D)
a
loss
in
total
welfare
5)
If
the
sellers
of
a
good
are
taxed
for
each
unit
sold,
________.
A)
the
price
that
buyers
need
to
pay
falls
B)
a
larger
quantity
of
the
good
is
sold
C)
the
price
that
sellers
receive
increases
D)
a
smaller
quantity
of
the
good
is
sold
2
The
table
below
shows
the
tax
brackets
for
different
income
groups
in
a
country:
6)
Refer
to
the
table
above.
This
is
an
example
of
a
________
tax
system.
A)
progressive
B)
regressive
C)
proportional
D)
cardinal
7)
Refer
to
the
table
above.
If
Tom
has
a
taxable
income
of
$62,000,
he
faces
a
marginal
tax
rate
of
________.
A)
10%
B)
15%
C)
20%
D)
30%
8)
Refer
to
the
table
above.
If
Jack
has
an
annual
income
of
$50,000
and
Jill
earns
$77,500,
which
of
the
following
is
true?
A)
Jack
and
Jill
pay
an
equal
amount
of
tax.
B)
The
average
rates
of
tax
paid
by
Jack
and
Jill
are
equal.
C)
The
marginal
tax
rate
for
Jack
is
higher
than
the
marginal
tax
rate
for
Jill.
D)
Jack
and
Jill
fall
in
the
same
tax
bracket.
9)
If
a
tax
is
imposed
per
unit
of
a
good
sold,
________.
A)
the
supply
curve
of
the
good
shifts
to
the
right
B)
the
supply
curve
of
the
good
shifts
to
the
left
C)
the
demand
curve
for
the
good
shifts
to
the
right
D)
the
demand
curve
for
the
good
shifts
to
the
left
10)
The
deadweight
loss
due
to
a
________
is
always
smaller
than
the
deadweight
loss
due
to
a
________.
A)
tax
on
each
unit
sold;
per
unit
tax
on
each
unit
bought
B)
per
unit
tax
on
each
unit
sold;
per
unit
tax
on
each
unit
bought
C)
tax
on
each
unit
sold;
lump
‐
sum
tax
D)
lump
‐
sum
tax;
tax
on
each
unit
bought
3
11)
The
government
of
Westernia
imposes
a
per
‐
unit
tax
on
the
sale
of
potato
chips.
The
incidence
of
the
tax
is
higher
on
buyers
than
on
sellers
if
________.
A)
the
buyers
and
sellers
of
a
good
are
equally
sensitive
to
price
changes
B)
the
elasticity
of
the
market
demand
curve
is
higher
than
the
elasticity
of
the
market
supply
curve
C)
the
elasticity
of
the
market
supply
curve
is
higher
than
the
elasticity
of
the
market
demand
curve
D)
the
number
of
sellers
in
a
market
is
larger
than
the
number
of
buyers
The
graph
below
shows
the
demand
(D)
and
supply
(S)
curves
for
Good
X
before
and
after
a
tax
is
imposed
on
each
unit
of
the
good
sold.
12)
Refer
to
the
figure
above.
The
loss
in
consumer
surplus
due
to
the
imposition
of
the
tax
is
given
by
the
areas
________.
A)
JBIE
and
BIA
B)
EAG
AND
GHF
C)
CAE
AND
EAHF
D)
JBHF
AND
ABH
13)
Refer
to
the
figure
above.
The
region
________
shows
the
producer
surplus
after
the
imposition
of
the
tax.
A)
JBHF
B)
JBF
C)
JBC
D)
HAI
4
14)
The
burden
of
a
per
‐
unit
tax
falls
entirely
on
buyers
if
________.
A)
the
price
elasticity
of
demand
is
zero
B)
the
price
elasticity
of
demand
is
greater
than
1
C)
the
income
elasticity
of
demand
is
high
D)
the
price
elasticity
of
supply
is
zero.
15)
One
reason
governments
impose
taxes
is
to
________.
A)
reduce
the
number
of
transactions
in
an
economy
B)
redistribute
funds
via
transfer
payments
C)
increase
competition
among
producers
D)
increase
the
volume
of
exports
16)
In
the
United
States,
the
federal
government
relies
on
________
to
limit
inequality.
A)
regressive
taxes
B)
proportional
taxes
C)
progressive
taxes
D)
marginal
taxes
17)
The
average
tax
rate
faced
by
an
individual
is
the
________.
A)
total
tax
paid
by
her
divided
by
the
total
income
earned
B)
total
revenue
received
by
the
government
divided
by
the
number
of
taxpayers
C)
percentage
of
the
last
dollar
earned
that
a
household
pays
as
a
tax
D)
difference
between
the
highest
tax
rate
and
the
lowest
tax
rate
18)
Compared
to
a
firm
under
perfect
competition,
a
monopolist:
A)
charges
less
and
produces
less.
B)
charges
less
and
produces
more.
C)
charges
more
and
produces
less.
D)
charges
more
and
produces
more.
19)
When
compared
to
a
perfectly
competitive
industry,
in
a
monopoly:
A)
both
consumer
surplus
and
social
surplus
are
larger.
B)
consumer
surplus
is
lower
but
social
surplus
is
larger.
C)
both
consumer
surplus
and
social
surplus
are
smaller.
D)
consumer
surplus
is
higher
but
social
surplus
is
smaller.
20)
Which
of
the
following
is
an
example
of
a
good
produced
under
monopoly?
A)
CDs
B)
Books
C)
Aerated
drinks
D)
Patented
software
5
21)
Which
of
the
following
statements
is
true?
A)
Monopoly
is
characterized
by
no
entry
barriers.
B)
Perfect
competition
is
characterized
by
high
entry
barriers.
C)
Firms
in
a
market
with
entry
barriers
are
likely
to
have
more
market
power
than
firms
in
a
market
with
no
entry
barriers.
D)
Firms
in
a
market
with
no
entry
barriers
are
likely
to
have
more
market
power
than
firms
in
a
market
with
entry
barriers.
22)
Economies
of
scale
in
production
act
as
a
source
of:
A)
legal
market
power.
B)
natural
market
power.
C)
restricted
market
power.
D)
regulated
market
power.
23)
A
network
externality
refers
to
a
situation
where:
A)
the
value
of
a
product
increases
as
more
consumers
start
to
use
it.
B)
firms
collude
to
sell
products
at
a
price
higher
than
the
equilibrium
market
price.
C)
a
firm
that
has
control
over
key
resources
auctions
the
resources
off
to
other
firms.
D)
the
government
interferes
to
prevent
the
concentration
of
market
power
in
the
hands
of
a
few
firms.
24)
Which
of
the
following
statements
is
true?
A)
A
monopolist
faces
an
upward
sloping
demand
curve.
B)
A
perfectly
competitive
firm
faces
an
upward
sloping
demand
curve.
C)
A
monopolist
can
increase
the
price
of
its
product
and
not
lose
all
of
its
business.
D)
A
perfectly
competitive
firm
can
increase
the
price
of
its
product
without
losing
its
business.
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13.
Consider the following hypothetical data for the U.S. economy in 2018 (in trillions of dollars) and assume that there
was no statistical discrepancies or other adjustments.
Profit
2.8
Indirect Business Taxes
0.8
Rent
0.7
Interest
0.8
Wages
Depreciation
Consumption
Exports
Government transfer payments
Personal Income Taxes and nontax payments
Imports
Corporate Taxes and retained earnings
Social security contributions
Government spending
8.2
1.3
11.0
1.5
2.0
1.7
1.7
0.5
2.0
1.8
a.
What is gross domestic income?
Gross Domestic Income- Rent + Wages + Profit + Interest + Depreciation + Indirect Business
a.
What is GDP?
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Real interest
rate (percent
per year)
4.
Loanable funds demanded
(billions of 2007 dollars)
Loanable funds supplied
(billions of 2007 dollars)
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.5
6.0
6.5
7.0
7.5
8.0
8.5
6.
7.
8
9.
10
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Suppose the following statistics characterize the financial health of the hypothetical economy Splurgium at the end of 2017:
Gross domestic product (GDP) is equal to $160 billion.
• The national debt is equal to $240 billion.
• The government has a budget deficit of $8 billion.
The debt ceiling in Splurgium is set at $264 billion.
The following calculations help you see how the ratio of debt to GDP changes from one year to the next.
Complete the first row of the following table by computing the ratio of national debt to GDP.
Suppose that nominal GDP remains at $160 billion in 2018, and again the government runs a budget deficit of $8 billion. For simplicity, assume the
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National Debt
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Complete the first row of the following table by computing the ratio of national debt to GDP.
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Question 17/28
> NEXT
A BOOKMARK
17
The two largest areas of federal spending which impact the U.S. budget are
Total Federal Spending 2015: $3.8 Trillion
Housing &
Community
$61.5 billion - 2%
Energy &
Environment
$50.2 billion - 19% 48 bilion-1%
International Affairs
Science
$29.8 billion - 1%
Transportation,
$85 billion - 2%
Education
$102.3 bilion - 3%.
Social Security
Unemployment
Labor
L$1.275.7 bilion -33%
Food & Agriculture.
$135.7 biion 4%
Veterans Benefits,
$160.6 billion-4%
Interest on Debt
$229.2 bilion -6%
Miltary
S609.3 bilion - 16%
Medicare & Health
$1.051.8 billion-27%
PRIORITIES nationalpriotes.org
A Medicare and Veteran Affairs
B Social Security and Interest on the debt
C Defense and Education
Medicare and Social Security
DELL
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The following calculations help you see how the ratio of debt to GDP changes from one year to the next. Suppose that
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trillion ducats. This means that the ratio of debt to GDP is 1.4, or 140%. Also, suppose that the deficit is 7 trillion
ducats, which is 7% of GDP.
Aa Aa
When the government runs a deficit, it spends more than it collects in tax revenue. To make up the difference, it
borrows. So if it runs a deficit of 7 trillion ducats, debt increases by 7 trillion ducats. So debt next year is 147 trillion
ducats. Suppose that there is no growth in real GDP and inflation is equal to -2% per year. (Negative inflation is the
same as deflation.) Next year's GDP will be equal to
trillion ducats.
If the ratio of debt to GDP is 1.4 this year, the ratio of debt to GDP next year when inflation is equal to -2% per year
will be
Suppose that…
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2. calculating the debt to GDP ratio
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Unlike households, governments are often able to sustain large debts. For example, in 2019, the U.S. government’s total debt reached $21.2 trillion, approximately equal to 105.3% of GDP. At the time, according to the U.S. Treasury, the average interest rate paid by the government on its debt was 1.3%. However, running budget deficits becomes hard when very large debts are outstanding.
A) Calculate the total increase in national debt if the government incurs a deficit of $600 billion in 2020. Enter your answer in billions of dollars and round to the nearest tenth.
- Debt Increase: $ (Billion)
B) At what rate would GDP have to grow in order for the debt–GDP ratio to remain unchanged when the deficit in 2020 is $600 billion? Enter your answer as a percentage and round your answer to the nearest hundredth of a percent.
- Rate of GDP Growth: (%)
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INTEREST RATE (Percent)
Supply
Demand
LOANABLE FUNDS (Billions of dollars)
Scenario 1: Individual Retirement Accounts (IRAS) allow people to shelter some of their income from taxation. Suppose the maximum annual
contribution to such accounts is $5,000 per person. Now suppose there is an increase in the maximum contribution, from $5,000 to $8,000 per year.
Shift the appropriate curve on the graph to reflect this change.
This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds to
investment spending to
Shift the appropriate curve on the graph reflect this change.
The implementation of the new tax credit causes the interest rate to
Demand
Supply
Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the
government implements a new investment tax credit.
This change in spending causes the government to run a budget
This causes the interest rate…
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Question 12 of 75 >
O Macmillan Learning
(Table) According to the table, net exports of goods and services are equal to
GDP Expenditures for 2010
Expenditure
Personal consumption
Gross private domestic investment
Exports
Imports
Government purchases
Capital consumption allowance
-$505.4 billion.
$505.4 billion.
$738.9 billion.
-$738.9 billion.
Billions
$10,353.5
1,769.1
1.746.1
2,251.5
2,975.1
1,030.2
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If consumption expenditures are $1800 million, gross investment is $450 million, imports are $350 million, exports are $180 million, government expenditure on goods and services is $120 million, and government transfer payments are $180 million and net taxes are $250 million;
a) Calculate the GDP.
b) Is there budget deficit or surplus? Calculate.
c) How much is the private (household) saving?
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- Question Assume a government has $28,667 in tax revenues and $40,094 in total government spending. What is the value of the annual budget balance? Please round to 2 decimal places if needed. Be sure to include a negative sign (-) if it is a decrease and do not include a dollar sign ($) when answering.arrow_forward27- : “The document showing the income and expenses of the state together is called X.” In his statement, which of the following is most appropriate for X? a) Budget B) national income NS) national income per capita D) Marginal revenue TO) purchasing power parityarrow_forward(2) Your paycheque for the year is higher this year than last year. Does that mean that your real income has increased?arrow_forward
- (b) Lori is a student who teaches golf on the weekend and in a year earns $20,000 after paying her taxes. At the beginning of 2010, Lori owned $1,000 worth of books, CDs, and golf clubs and she had $5,000 in a savings account at the bank. During 2010, the interest on her savings account was $300 and she spent a total of $15,300 on consumption goods and services. There was no change in the market values of her books, CDs, and golf clubs. (i) How much did Lori save in 2010? (ii) What was her wealth at the end of 2010?arrow_forward6) In order to be ranked as one of the top ten fastest growing states in the country, Montana needed to achieve GDP growth of 5% in 2021. Montana's Treasury department informed the Governor that the state is currently on track for 3% growth, and as a result, GDP will have to expand by an additional $1 million for the state to rank in the top ten. The governor does not believe the state legislature will approve a $1 million spending package, so she is convinced there is no chance Montana will make the top ten, particularly since she just received a report that Montanans tend to save 40% of any additional income they receive. If you were advising the Governor, what you tell her about her predicament? Based on this, please indicate the dollar amount of the spending package she should request from her legislature.arrow_forwardInterest on debt.arrow_forward
- Measuring Economic Performance (chapter 11) 1. Would it be possible for an increase in taxation to decrease the gross domestic product measured in the U.S.? Why or why not? please take your time sir answer nicely with explaining thanksarrow_forward(Use for a and b)Suppose the interest on the debt was $700 billion. If interest is paid domestically, 90% will be spent domestically (the remainder is spent on foreign goods). If interest is paid to the foreign sector, only 10% is spent here (the remainder is spent in foreign countries). Every dollar collected in taxes to pay the interest causes domestic spending to fall 90 cents. The spending multiplier is 2. a) What is the net impact on GDP if all interest is paid domestically? b) What is the net impact on GDP if 20% of the interest is paid to the foreign sector? c)What are the desirable qualities of an efficient commodity money?arrow_forward13. Consider the following hypothetical data for the U.S. economy in 2018 (in trillions of dollars) and assume that there was no statistical discrepancies or other adjustments. Profit 2.8 Indirect Business Taxes 0.8 Rent 0.7 Interest 0.8 Wages Depreciation Consumption Exports Government transfer payments Personal Income Taxes and nontax payments Imports Corporate Taxes and retained earnings Social security contributions Government spending 8.2 1.3 11.0 1.5 2.0 1.7 1.7 0.5 2.0 1.8 a. What is gross domestic income? Gross Domestic Income- Rent + Wages + Profit + Interest + Depreciation + Indirect Business a. What is GDP? GDP= Consumption + Gross Private Domestic Investment + Government Spending + Exports - Importsarrow_forward
- The table sets out data for an economy when the government's budget is balanced. Real interest rate (percent per year) 4. Loanable funds demanded (billions of 2007 dollars) Loanable funds supplied (billions of 2007 dollars) 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.5 6.0 6.5 7.0 7.5 8.0 8.5 6. 7. 8 9. 10 a) Calculate the equilibrium real interest rate, investment, and private saving. b) If planned saving increases by $0.5 billion at each real interest rate, explain the change in the real interest rate. c) If planned investment increases by $1 billion at each real interest rate, explain the change in the real interest rate. d) If the government's budget becomes a deficit of $1 billion, what are the real interest rate and investment? Does crowding out occur? e) If the government's budget becomes a deficit of $1 billion and the Ricardo-Barro effect occurs, what are the real interest rate and the investment?arrow_forwardCan you provide a sketch of the graph the mathematical working out for the borrower or saver part of the questionarrow_forward2. Calculating the debt to GDP ratio Suppose the following statistics characterize the financial health of the hypothetical economy Splurgium at the end of 2017: Gross domestic product (GDP) is equal to $160 billion. • The national debt is equal to $240 billion. • The government has a budget deficit of $8 billion. The debt ceiling in Splurgium is set at $264 billion. The following calculations help you see how the ratio of debt to GDP changes from one year to the next. Complete the first row of the following table by computing the ratio of national debt to GDP. Suppose that nominal GDP remains at $160 billion in 2018, and again the government runs a budget deficit of $8 billion. For simplicity, assume the interest rate on the national debt is 0%, and no payments are being made to reduce the debt. Calculate national debt and the debt-to-GDP ratio in 2018. Enter these values in the second row of the following table. GDP National Debt (Billions of dollars) (Billions of dollars) Ratio of…arrow_forward
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