Question 1

Adam earns $100,000 per year and pays $10,000 in taxes. Madison earns $200,000 per year. If the income tax system is progressive and if only Madison pays $________ in taxes, then the tax system is progressive. What is the minimum amount Madison must pay for the tax system to be considered progressive?

Accepted Answer

More than $20,000

Question 2

James earns $20,000 per year and pays $20,000 in taxes. Emma makes $32,000 per year and pays $8,000 in taxes. This tax system is:

Accepted Answer

Regressive

Question 3

Over 50% of federal discretionary spending goes towards:

Accepted Answer

National defense

Question 4

Which of the following is an example of mandatory spending?

Accepted Answer

Medicare

Question 5

When Elizabeth goes to work at McDonald's, her labor would be represented by:

Accepted Answer

Households supplying labor to firms

Question 6

Which of the following is equal to the amount of money the government received in a certain year minus the amount of money the government spent that year? (Assume that this number is negative.)

Accepted Answer

Federal budget deficit

Question 7

A newly elected nation experiences a $3 billion budget deficit its first year, a $1 billion budget surplus in its second year, and a $4 billion budget deficit in its third year. What is the national debt at the end of the third year?

Accepted Answer

$6 billion

Question 8

The Social Security tax is considered to be regressive because:

Accepted Answer

The Social Security tax is collected on additional earnings above a 'cap' income level.

Question 9

As income increases, the Social Security tax rate increases at a decreasing rate. According to standard definitions, the Social Security tax is:

Accepted Answer

A regressive tax

Question 10

Which of the following is NOT typically used to pay for mandatory spending?

Accepted Answer

Excise taxes

Question 11

Suppose the government runs a budget deficit of $500 billion in year 1 and a budget surplus of $200 billion in year 2. What is the change in the national debt over these two years?

Accepted Answer

$300 billion increase

Question 12

If the government wants to reduce the national debt, which of the following must occur?

Accepted Answer

Run a budget surplus

Question 13

Which of the following best describes a progressive tax system?

Accepted Answer

Tax rate increases as income increases

Question 14

If a household pays $5,000 in taxes on $50,000 of income, what is their average tax rate?

Accepted Answer

$0.10$

Question 15

Which of the following is an example of a proportional tax?

Accepted Answer

A flat income tax rate of $10\%$ for all income levels

Question 16

If the government collects $2 trillion in taxes and spends $2.5 trillion in a year, what is the budget deficit?

Accepted Answer

$0.5$ trillion

Question 17

Which of the following is most likely to be funded by discretionary spending?

Accepted Answer

National defense

Question 18

If the government increases payroll taxes, which program is most likely to benefit from the additional revenue?

Accepted Answer

Social Security

Question 19

Which of the following statements about the federal budget deficit is correct?

Accepted Answer

It is the difference between government spending and revenue in a given year

Question 20

If a country has a national debt of $10 trillion and runs a budget deficit of $1 trillion this year, what will the national debt be at the end of the year?

Accepted Answer

$11$ trillion

Study Notes: Public Finance and Fiscal Policy in Macroeconomics

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