Question

1.The right rate of inflation for the economy—the rate at which no one really pays attention to it—is a rate between:

Multiple Choice

• −2 and 2 percent.

• −5 and zero percent.

• zero and 2 percent.

• 2 and 5 percent.

2.

Suppose you are in the 39% marginal tax bracket. For every additional dollar earned, how much does the government get and how much do you keep?

Instructions: Enter your responses rounded to two decimal places.

The government gets: $

You keep: $

3. During a recession, the budget deficit generally increases because tax revenues weaken while expenditures rise. This increase is known as the

Multiple Choice

• fiscal stabilizer.

• automatic increase.

• net stimulus increase.

• automatic stabilizer.

Answer 1

a) "C"

If the interest rate is below 2% no one really pays much interest to it as that level of inflation is acceptable.

b) In the tax bracket of 39% for every additional dollar earned 0.39 will be paid as tax and 0.61 will be kept as an income.

c) "D"

this is an example of the automatic stabilizer, in the time of recession unemployment benefit, transfer payments increase, that increases the deficit automatically.