Topic: Fiscal Policy

1) Suppose the tax rate on interest income is 50 percent, the real interest rate is 3 percent, and the inflation rate is 4 percent. The real after-tax interest rate is

A) -0.5 percent. B) 3.5 percent. C) 3.0 percent. D) 4.0 percent. E) -3.5 percent.

Answer: A

2) Suppose that in China, investment is $400 billion, saving is $400 billion, tax revenues are $500 billion, exports are $300 billion, and imports are $200 billion. The government budget ________ the supply of loanable funds, which ________ the real interest rate and ________ investment.

A) surplus increases; lowers; decreases

B) surplus decreases; raises; increases

C) surplus increases; lowers; increases

D) deficit decreases; raises; decreases

Answer: C

3) Currently the government of Ricardia has outlays equal to $100 billion, and a tax scheme that is related positively to real GDP by the following equation: Taxes = $25 billion + 0.1(real GDP). What are autonomous taxes in Ricardia?

A) 0.1

B) $2.5 billion

C) $250 billion

D) $25 billion

Answer: D

4) When real GDP equals potential GDP of $12 trillion, the budget deficit is $1 trillion. Real GDP actually equals $14 trillion and the budget surplus is $3 trillion. The economy has a structural ________ and a cyclical ________.

A) deficit of $1 trillion; surplus of $4 trillion

B) surplus of $4 trillion; deficit of $1 trillion

C) deficit of $4 trillion; surplus of $1 trillion

Answer: A

Can you write down their calculation process or explain these questions?