ECON 10223 Lecture Notes - Lecture 10: Retained Earnings, Tax Bracket, Excise

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ultramarinehornet580

6 Nov 2017

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Capitalist democracy: by the prices, for the people. Progressive tax system: as income increases, taxes also increase- if you make more then they take more. Regressive tax system: when increase increases, taxes decrease. Static: the same make assumptions that the tax base is going to stay the same. There is a response in the tax base. Tax bracket: subcategory of tax rate, specific income categories. Capital gain: bought for 5 sold for 10- 5 gain. Capital loss: bought for 5 sold for 3- 2 loss. Retained earnings: the portion that is reinvested/not passed on. Advalorum tax: value added tax from the users. Excise tax: i tax meant for consumers but they do not pay it so the suppliers pay it. Elasticity: your response to a change in price.

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TRUE or FALSE?

1. Real GDP can never be greater than potential GDP.

2. When foreign countries experience an increase in income, this is likely to increase our GDP.

3. The United States economy spends about as many months in recession as it spends in expansion.

4. If individuals decrease their consumption spending then this is likely to reduce the growth rate of GDP, all else the same.

5. Movements of real GDP around potential GDP are called the business cycle.

6. If total government spending in a given year was $3.7 trillion, then all of this spending counted directly in GDP as part of the government spending (G) category.

7. The last recession in the United States began in December of 2007.

8. During a recession, the inflation rate tends to decline.

9. Changes in spending that cause firms to change their level of production of goods/services are called supply shocks.

10. All else the same, an increase in income in the United States leads to a decrease in our net exports.

11. Since 1929 there have been 14 declared recessions in the United States.

12. Total spending in the economy is equal to consumption + investment + government spending - net exports.

13. During each recession, potential GDP falls.

14. Percentage wise, the government collects more tax from individuals than it does from firms.

15. During a recession, the Federal Reserve pursues contractionary monetary policy.

16. During a recession, the Federal Reserve is most likely to sell government bonds to the public.

17. Investment spending increases during periods of recession.

18. Congress meets about every 6 - 8 weeks to discuss the performance of the economy and potential changes to fiscal policy.

19. If there is more competition among firms, then the inflation rate will tend to increase.

20.The demand for labor increases when the economy is in an expansionary phase.

21. Total spending by the government is about 20% of GDP in the US economy.

22. The unemployment rate decreases during periods of expansion.

23. If oil prices increase by 20% then this is an example of a supply shock.

24. When the Federal Reserve buys government bonds, interest rates are likely to fall.

25. If Congress wanted to help the economy out of a recession, they would be most likely to reduce government spending and/or increase taxes.

Falsenot in accordance with the fact or reality or actualityMore (Definitions, Synonyms, Translation)

plumeagle724

QUESTION 46

When the Fed buys a U.S. bond in the open market

		its action has no effect on the total reserves or the money supply because the check it writes increases reserves at one bank but they fall at another.
		its action expands total reserves and the money supply.
		its action contracts total reserves and the money supply.
		total reserves increase by the amount of the purchase but the money supply stays the same.

1.11 points

QUESTION 47

When the Fed sells government securities,

		reserves increase, leading to a decrease in the money supply by an amount more than the sale of the government securities.
		reserves decrease, leading to a decrease in the money supply by an amount more than the sale of the government securities.
		reserves increase, leading to a increase in the money supply by an amount more than the sale of the government securities.
		reserves decrease, leading to a increase in the money supply by an amount more than the sale of the government securities.

1.11 points

QUESTION 48

The maximum potential money multiplier is equal to

		the reserve ratio.
		one minus the reserve ratio
		the inverse of the required reserve ratio.
		the number of dollars on reserve.

1.11 points

QUESTION 49

The potential money multiplier gives us

		the growth in the money supply when income increases.
		the growth in real national income when the money supply increases.
		the maximum potential change in the money supply due to a change in income.
		the maximum potential change in the money supply due to a change in reserves.

1.11 points

QUESTION 50

An increase in the reserve ratio

		increases the money multiplier.
		will cause banks to make more loans.
		has an expansionary effect on the money supply.
		has a contractionary effect on the money supply.

1.11 points

QUESTION 51

The Federal Deposit Insurance Corporation insures

		banks against lawsuits.
		the deposits held in member banks.
		the deposits held in the Fed.
		the federal funds market.

1.11 points

QUESTION 52

Bank runs are a possibility because

		in difficult times people want currency instead of demand deposits.
		the FDIC is inefficient.
		banks do not keep enough reserves to cover all their depository liabilities.
		bankers are often poor businesspeople.

1.11 points

QUESTION 53

The manner in which FDIC deposit insurance is set up in the United States encourages banks to

		make riskier loans than they otherwise would.
		reject some loans that probably would be profitable.
		maintain excess reserves that are too great.
		be too conservative in their lending practices.

1.11 points

QUESTION 54

The Federal Deposit Insurance Corporation

		discourages banks from engaging in excessive risk taking.
		was established after the Panic of 1907.
		only insures deposits in money-center banks.
		increases the stability of the banking system by reducing the likelihood of bank runs.

1.11 points

QUESTION 55

What are the two features of money that distinguish it from all other goods in the economy?

		Money is government issued and it is redeemable for gold or silver.
		Money is part of every barter transaction and it is divisible.
		Money is accepted as a medium of exchange and it is the common unit of account used to express prices.
		Money is a common unit of account and it is also can be traded for other currencies at a guaranteed exchange rate.

1.11 points

QUESTION 56

Holding money to meet unplanned expenditures and emergencies is known as

		asset demand.
		precautionary demand.
		aggregate demand.
		transactions demand.

1.11 points

QUESTION 57

When people want to hold money to make regular planned expenditures, this is

		the transaction demand for money.
		the spending demand for money.
		the asset demand for money.
		the precautionary demand for money.

1.11 points

QUESTION 58

When interest rates rise, the transactions demand for money usually

		decreases.
		increases.
		decreases initially and then increases to the original position.
		does not change.

1.11 points

QUESTION 59

As nominal Gross Domestic Product (GDP) rises, the transactions demand for money

		increases, and the money demand curve shifts to the right.
		remains constant, and the money demand curve remains the same.
		decreases, and the money demand curve shifts to the left.
		increases, and the money demand curve shifts to the left.

1.11 points

QUESTION 60

One of the economic costs of holding currency is that

		it fulfills no precautionary role.
		it fulfills no transactions role.
		it earns no interest income.
		its real value always increases.

blacktrout920

1. Menu costs are:

A) the costs of materials.

B) the cost of changing prices.

C) particularly low when inflation is high.

D) a reason that the inflation rate typically underestimates true price level changes.

2. A market basket costs $150 to buy in the base year and $60 to buy in year X.

A. the price index for year X is 250.

B. Year X probably occurred after the base year.

C. Year X is the base year.

D. the price index for year X is .4 or 40%.

3. A traditional expansionary gap is created when the aggregate demand curve moves to the:

A. right of the natural rate of output; inflation rises and unemployment falls.

B. left of the natural rate of output; inflation falls and unemployment rises.

C. right of the natural rate of output; inflation falls and unemployment rises.

D. left of the natural rate of output; inflation rises and unemployment falls.

4. Consumers change their purchases and move ALONG the same consumption function when:

A) Their income changes

B) Their tastes change

C) The price level changes

D) All of the above.

5. If MPC is .75 then if consumer income rises by $10,000 we would predict that consumption will:

A. rise by $7500 while savings fall by $2500.

B. fall by $2500 while savings rise by $7500.

C. rise by $7500 while savings rise by $2500.

D. fall by $2500 while savings fall by $7500.

6. Autonomous consumption is

A. that part of consumption that rises or falls with changes in disposable income.
B. the minimum that people will spend even if disposable income is zero.
C. the amount people will spend when the C line crosses the 45-degree line.
D. the amount people will spend when income is equal to consumption.

7. A low rate of investment could be explained by a

A. low rate of saving and low-interest rates.
B. low rate of saving and high-interest rates.
C. high rate of saving and low-interest rates.
D. high rate of saving and high-interest rates.

8. Mr. A makes $40,000 a year; Ms. B makes $20,000 a year. Mr. A pays $6,000 in taxes while Ms. B pays $4,000 in taxes. Which of the following is true?

A. Taxes are progressive because Mr. A pays a higher dollar amount in taxes than Ms. B

B. Taxes are neutral because Mr. A makes more money before and after taxes than Ms. B.

C. Taxes are regressive because Mr. A pays a lower tax rate than Ms. B.

D. Taxes are progressive because Ms. B pays a lower dollar amount in tax.

9. The 45 degree line in the full AE model represents

A. all points where C = Y.

B. all points where AE = Y

C. all points where C + I = G + Xn

D. all points where C = I + G + Xn

10. International trade:

A. Allows countries to specialize in the goods at which they are best at producing.

B. can increase the goods and services both trading partners have.

C. can be unbalanced where one partner exports more to the other than the other way around.

D. all of the above.

11. If AD rises in the short run:

A. it pushes up the price level.

B. it decreases national output.

C. increases full employment.

D. all of the above.

12. We cut down trees and sell the timber for $8000. The timber is sawn up into lumber that sells for $18,000. The lumber is used to build furniture that sells to consumers for $30,000.

A. $30,000 goes into GDP.

B. $4000 goes into GDP.

C. $56,000 goes into GDP.

D. $22,000 goes into GDP.

13. The long-run annual growth rate of the U.S. economy tends to be about:

A. 1% or less.

B. 2%

C. 5%

D. 10% or more.

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ECON 10223 Lecture Notes - Lecture 10: Retained Earnings, Tax Bracket, Excise

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