1 Between 1986 and 2010 the top marginal personal income tax rate was 40 percent or less compared to 70 percent or more prior to 1981 Compared to the earlier time period in recent years the share of personal income taxes paid by high income taxpayers a has been lower b has been virtually unchanged c has been higher d increased in the late 1980s but has been falling ever since 2 Within the framework of the AD AS model an increase in savings by households will a increase the supply of loanable funds and reduce interest rates b be offset by a decrease in savings by businesses c cause long run fluctuations in the rate of consumption d result in a decline in aggregate demand output and employment 3 Which of the following most clearly indicates that fiscal policy is becoming more restrictive a an increase in the budget deficit relative to GDP b a reduction in the budget deficit relative to GDP c an increase in government expenditures as a share of GDP d a reduction in tax revenues as a share of GDP 4 Budget projections for 2010 2019 indicate both higher levels of government spending and large budget deficits Non Keynesian economists argue that this will lead to a lower taxes which will reduce aggregate supply and retard long term growth b growth rates above the historic average for the decade c an increase in aggregate demand and real output d higher interest rates higher taxes and sluggish future growth 5 The crowding out effect suggests that a expansionary fiscal policy causes inflation b high marginal tax rates crowd out tax deductions c the demand stimulus effects of a budget deficit will be weak because the borrowing to finance the deficit will lead to higher interest rates d a budget surplus will cause the economy to slip into a major recession 6 Which of the following groups would be least likely to support a balanced budget amendment to the U S Constitution a Keynesians b new classicals c supply siders d believers in the crowding out view 7 Which of the following will make it difficult to institute fiscal policy in a stabilizing manner a Politicians will find it more attractive to raise taxes than to increase spending b Politicians will find it attractive to increase taxes during a recession but they will be reluctant to reduce them during an expansion c Politicians will find budget deficits attractive during a recession but they will be reluctant to run budget surpluses during an expansion d Politicians will find budget surpluses attractive during a recession but they will be reluctant to run budget deficits during an expansion Answers 1 C 2 A 3 B 4 D 5 C 6 A 7 C
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