ECO 111 Exam #3 questions with
complete solutions
mandatory spending - correct answer ✔✔sometimes called entitlement programs, comprise
government spending determined by ongoing government programs like Social Security and
Medicare. Required by existing laws. The largest percent of spending.
discretionary spending - correct answer ✔✔comprise spending that is adjustable during the
annual budget process. Examples (monies for bridges and roads, payments to government
workers, and defense spending). The second largest percent of spending.
transfer payments - correct answer ✔✔payments made to groups or individuals when no good
or service is received in return
income taxes - correct answer ✔✔a type of tax levied on taxable income by the federal
government and by many state and local governments
marginal tax rate - correct answer ✔✔is the tax rate paid on an individual's next dollar of
income
average tax rate - correct answer ✔✔total taxes paid divided by total income
progressive taxation - correct answer ✔✔people with higher incomes pay a larger portion of
their taxes than people with lower incomes do.
regressive taxation - correct answer ✔✔Taxation where as income increases, the fraction of
income paid as taxes decreases.
, budget deficit - correct answer ✔✔occurs when government outlays exceed revenue in a given
time period, usually a year.
budget surplus - correct answer ✔✔occurs when government revenue exceeds outlays in a
given time period, usually a year.
deficits - correct answer ✔✔shortfalls in the budget due to the government's spending more in
a year than it takes in
debt - correct answer ✔✔the total of all accumulated and unpaid budget deficits
fiscal policy - correct answer ✔✔involves the use of government budget tools, government
spending, and taxes to influence the macroeconomy.
expansionary fiscal policy - correct answer ✔✔occurs when the government increases spending
or decreases taxes to stimulate the economy toward expansion. Increases budget deficit.
contractionary fiscal policy - correct answer ✔✔occurs when the government decreases
spending or increases taxes to slow economic expansion. Decreases budget deficit.
countercyclical fiscal policy - correct answer ✔✔fiscal policy that seeks to counteract business
cycle fluctuations
marginal propensity to consume (MPC) - correct answer ✔✔is the portion of additional income
that is spent on consumption. MPC = change in consumption/change in income. MPC is greater
than or equal to zero and less than or equal to one.
Spending Multiplier - correct answer ✔✔a formula to determine the equation's effect on
spending from an initial change of a given amount. ms = 1/(1-MPC)
complete solutions
mandatory spending - correct answer ✔✔sometimes called entitlement programs, comprise
government spending determined by ongoing government programs like Social Security and
Medicare. Required by existing laws. The largest percent of spending.
discretionary spending - correct answer ✔✔comprise spending that is adjustable during the
annual budget process. Examples (monies for bridges and roads, payments to government
workers, and defense spending). The second largest percent of spending.
transfer payments - correct answer ✔✔payments made to groups or individuals when no good
or service is received in return
income taxes - correct answer ✔✔a type of tax levied on taxable income by the federal
government and by many state and local governments
marginal tax rate - correct answer ✔✔is the tax rate paid on an individual's next dollar of
income
average tax rate - correct answer ✔✔total taxes paid divided by total income
progressive taxation - correct answer ✔✔people with higher incomes pay a larger portion of
their taxes than people with lower incomes do.
regressive taxation - correct answer ✔✔Taxation where as income increases, the fraction of
income paid as taxes decreases.
, budget deficit - correct answer ✔✔occurs when government outlays exceed revenue in a given
time period, usually a year.
budget surplus - correct answer ✔✔occurs when government revenue exceeds outlays in a
given time period, usually a year.
deficits - correct answer ✔✔shortfalls in the budget due to the government's spending more in
a year than it takes in
debt - correct answer ✔✔the total of all accumulated and unpaid budget deficits
fiscal policy - correct answer ✔✔involves the use of government budget tools, government
spending, and taxes to influence the macroeconomy.
expansionary fiscal policy - correct answer ✔✔occurs when the government increases spending
or decreases taxes to stimulate the economy toward expansion. Increases budget deficit.
contractionary fiscal policy - correct answer ✔✔occurs when the government decreases
spending or increases taxes to slow economic expansion. Decreases budget deficit.
countercyclical fiscal policy - correct answer ✔✔fiscal policy that seeks to counteract business
cycle fluctuations
marginal propensity to consume (MPC) - correct answer ✔✔is the portion of additional income
that is spent on consumption. MPC = change in consumption/change in income. MPC is greater
than or equal to zero and less than or equal to one.
Spending Multiplier - correct answer ✔✔a formula to determine the equation's effect on
spending from an initial change of a given amount. ms = 1/(1-MPC)
