PRACTICE TEST 3 ECON 2105 1 The largest portion of the federal budget is dedicated to a discretionary spending b mandatory outlays c interest payments d tax collection e defense spending 2 A progressive income tax system is one in which a income tax rates decrease as earned income increases b everyone pays the same tax rate so that wealthier people pay a larger sum of taxes c everyone pays the same tax rate so that people with low incomes pay a smaller sum of taxes d income tax rates increase as earned income increases e income taxes are based on occupation Refer to the following table to answer the next three questions 2012 Federal Income Tax Brackets Taxable Income Tax Rate 0 8 700 10 percent 8 701 35 350 15 percent 35 351 85 650 25 percent 85 651 178 650 28 percent 178 651 388 350 33 percent Over 388 350 35 percent 3 Using the table what is the total federal income tax bill for someone who makes 67 000 per year a 16 750 b 12 780 c 11 169 d 10 050 e 6 700 4 Using the table what is the average tax rate for someone who makes 67 000 per year a 10 0 percent b 14 2 percent c 16 7 percent d 25 0 percent e 19 1 percent 5 Using the table what is the marginal income tax rate for someone who makes 67 000 per year a 10 0 percent d 25 0 percent b 14 2 percent e 19 1 percent c 16 7 percent 6 The wealthiest 20 percent of households in the United States a do not contribute their fair share of federal income taxes b c d e contribute the vast majority of all federal income taxes are forced to pay too much in federal income taxes pay zero federal income taxes because of tax loopholes contribute less than 50 percent of all federal income taxes because of tax loopholes 7 Taxes that are deducted from workers paychecks are referred to as a paystub revenue b income seizures c excise taxes d payroll taxes e payday taxes 8 Fiscal policy includes a only increases and decreases to taxes b only increases and decreases to government spending c increases and decreases to both taxes and government spending d only decreases in taxes and increases in government spending e only increases in taxes and decreases in government spending 9 The goal of expansionary fiscal policy is to shift the curve to the a aggregate demand left b aggregate demand right c short run aggregate supply right d short run aggregate supply left e long run aggregate supply left 10 The Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 are both examples of policy a contractionary fiscal b expansionary monetary c contractionary monetary d expansionary fiscal e countercyclical monetary 11 A government might want to reduce aggregate demand if it believes that the economy is a in long run equilibrium b above the natural rate of unemployment c producing below full employment output d expanding past its long run capabilities e in a recession 12 If your marginal propensity to consume is 0 75 and you get an additional 400 in income you would spend on consumption a 400 00 b 200 00 c 533 33 d 300 00 e 1 600 00 13 If the marginal propensity to consume is equal to 0 75 the spending multiplier is equal to a 4 0 b 1 75 c 0 25 d 0 57 e 1 33 14 Government programs that automatically implement countercyclical fiscal policy in response to economic conditions are called automatic a stabilizers b policies c balancers d equalizers e holders 15 Supply side fiscal policy explains how taxes and government spending can affect a aggregate demand b short run aggregate supply c long run aggregate supply d the demand for loanable funds e the supply for loanable funds 16 Policies that focus on education a will affect aggregate supply immediately b are examples of an automatic stabilizer c are not examples of a supply side fiscal policy initiative d will shift the long run aggregate supply curve to the left over time e increase effective labor resources and thus increase aggregate supply over time 17 An illustration of the relationship between tax rates and tax revenues is called the a Laffer curve b new classical critique c aggregate demand aggregate supply model d loanable funds market e marginal tax curve 18 A major advantage of money over barter is that it is a a medium of exchange b fiat money c a unit of account d a store of value e currency 19 Which of the following events could cause inflation in the United States a country that uses fiat money a There is a discovery of a new silver mine b There has been a decision made to switch from a currency based on the amount of gold a scarce metal to a currency based on the amount of silver a plentiful metal c Individuals are frustrated by the infrequent occurrence of the double coincidence of wants d The government decides to print more money e The government decides to transition to a commodity backed money 20 The value of money when the price level increases a increases b decreases c initially increases but then decreases d initially decreases but then increases e does not change Refer to the following table to answer the next two questions Checkable deposits 12 500 000 Currency 34 000 000 Traveler s checks 1 000 000 Money market mutual funds 10 000 000 Small time deposits 7 000 000 Savings deposits 500 000 21 a b c d e What is the value of M1 13 500 000 46 500 000 47 500 000 57 500 000 64 500 000 22 a b c d e What is the value of M2 13 500 000 46 500 000 47 500 000 57 500 000 65 000 000 23 The Coppock Bank began the day with 10 000 000 in its reserve account and ended the day with the same amount If loans other assets and Treasury securities were 3 000 000 and owner s equity was 2 000 000 what is the bank s total amount of assets a 7 000 000 b 11 000 000 c 13 000 000 d 15 000 000 e There is not enough information to solve this 24 Suppose that the Bank of Bananas has excess reserves of 10 000 000 and checkable deposits of 200 000 000 If the bank has a reserve requirement of 25 percent what is its total amount of required reserves a 10 000 000 d 60 000 000 b 40 000 000 e 202 500 000 c 50 000 000 25 Expansionary monetary policy occurs when a a central bank acts to decrease the money supply in an effort to stimulate the economy b Congress and the president increase taxes in an effort to stimulate the economy c Congress and the president decrease taxes in an effort to stimulate …