Choose the correct answer for each question.

1. Which of the following would an economist classify as a public good?

   1.   ?    Health care
   2.   ?    Public libraries
   3.   ?    Seat belts in cars
   4.   ?    Street lighting

2. The main aim of increasing taxes on alcoholic drinks is

   1.   ?    To maximise government revenue
   2.   ?    Eliminate alcohol consumption
   3.   ?    Reduce alcohol consumption towards a socially efficient level
   4.   ?    Reduce employment in the drinks industry

3. Which of the following is a direct tax

   1.   ?    National insurance contributions
   2.   ?    Value added tax
   3.   ?    Excise duty on petrol
   4.   ?    Car insurance tax

4. The distribution of income can be made more equal by

   1.   ?    Abolishing all taxes
   2.   ?    Introducing indirect taxes on all goods and services
   3.   ?    Introducing progressive taxation
   4.   ?    Introducing proportional taxation

5. A budget deficit

   1.   ?    Means that imports are greater than exports
   2.   ?    Will lead to an increase in the National Debt
   3.   ?    Will facilitate a fall in interest rates
   4.   ?    Will help to reduce aggregate demand

6. If the Chancellor raised the income tax allowance by £500 leaving the basic rate at 20%, what would the effect on annual disposable income be?

   1.   ?    Raise it by £200
   2.   ?    Raise it by £100
   3.   ?    Lower it by £100
   4.   ?    Leave it unchanged

7. A government faces falling tax revenues and rising benefit payments. This is likely to be due to

   1.   ?    Faster economic growth
   2.   ?    Rising export earnings
   3.   ?    Higher unemployment
   4.   ?    Increased inflation

8. Stuart earns £20,000 per year and pays £4,000 in income tax. Steve earns £30,000 and pays £8,000 in income tax. Sylvie earns £10,000 and pays £1,500 in tax. The income tax system is

   1.   ?    Regressive
   2.   ?    Proportional
   3.   ?    Progressive
   4.   ?    Flat rate

9. A switch from direct to indirect taxation in the UK would be likely to

   1.   ?    Lead to an immediate fall in the rate of inflation
   2.   ?    Reduce the incentive to work
   3.   ?    Lead to a rise in interest rates
   4.   ?    Cause a change in the pattern of demand for goods and services

10. If an economy moves into an unexpected recession and the government has already planned a budget deficit, planned tax revenues will

    1.   ?    Rise, thus lowering the budget deficit
    2.   ?    Remain unchanged
    3.   ?    Fall, thus lowering the budget deficit
    4.   ?    Fall, thus increasing the budget deficit

11. A regressive tax is defined as one which requires

    1.   ?    All taxpayers to pay the same absolute amount of their income in taxation
    2.   ?    High income earners to pay more in tax than low income earners
    3.   ?    High income earners to pay a lower proportion of their income in taxes than low income consumers
    4.   ?    High income earners to pay a higher proportion of their income in taxes than low income earners

12. A decision by the government to introduce an expansionary fiscal policy would be less likely to succeed in reducing unemployment if a country had

    1.   ?    A high marginal propensity to import
    2.   ?    A fixed exchange rate
    3.   ?    A high level of cyclical unemployment and spare capacity
    4.   ?    A low level of business and consumer confidence

13. Which of the following is not an automatic stabiliser of national income?

    1.   ?    State retirement pensions
    2.   ?    Social security contributions
    3.   ?    Taxes on expenditure and income
    4.   ?    Unemployment benefits

14. Indirect taxes may be preferred to direct taxes because they

    1.   ?    will have little impact on the pattern of demand
    2.   ?    they are less likely to distort the choice between work and leisure
    3.   ?    will result in a more even distribution of income
    4.   ?    are unlikely to raise the prices of goods and services

15. One problem with using fiscal policy to stabilize the economy is that

    1.   ?    it is less powerful than monetary policy
    2.   ?    policymakers do not have accurate information about the economy in advance
    3.   ?    policymakers can use it to respond immediately to changes in economic conditions
    4.   ?    the time lags between a change in fiscal policy and its impact on aggregate demand are shorter than for monetary policy

16. Suppose a drop in consumer and business confidence results in an economic recession. In order to move the economy out of the recession, an expansionary fiscal policy would include

    1.   ?    an increase in direct and indirect taxation
    2.   ?    an increase in the real value of welfare benefits
    3.   ?    an expansion of the money supply
    4.   ?    a depreciation of the exchange rate

17. Which of the following is NOT an example of fiscal policy

    1.   ?    A reduction in government spending on training
    2.   ?    The use of the exchange rate to control inflation
    3.   ?    A planned increase in the government's budget deficit
    4.   ?    Tax concessions given to businesses locating in regions of high unemployment

18. All other things being equal, a government would be undertaking a contractionary fiscal policy if it reduced

    1.   ?    government expenditure
    2.   ?    interest rates
    3.   ?    taxation
    4.   ?    the exchange rate

19. Which one of the following changes in fiscal policy is most likely to explain a rightward shift of an economy's aggregate demand curve?

    1.   ?    A reduction in capital expenditure by government
    2.   ?    An increase in the rate of Value Added Tax
    3.   ?    A reduction in the level of welfare benefits
    4.   ?    A reduction in the basic rate of income tax