Worksheet for Chapter 3
I. Complete the Sentence
#1. The role of government is to provide goods and services which the private
market ________ ___ _________ _________.
#2. To purchase goods and pay salaries, ____ government needs ___________.
#3. There are other minor sources of revenue, including ___________ ______,
_______, _________ ____ ___________ ________, __________
_____, and _____________.
#4. _________ _________ is concerned with the design of public tax and
spending _____________.
#5. Taiwan has ___________ types of taxes.
#6. If you want more of something, _____ ____ , and if you want less of
something ___________ ____.
#7. A VAT refers to a _______ _________ _______.
#8. Tariffs are a type of tax since they tax _____________.
#9. Income taxes are considered _________ taxes, while sales taxes are considered
________ taxes.
#10. Some people believe that the tax system should be used for social __________.
#11. When income taxes are _______, we know that consumption will ______
because disposable income falls.
#12. A short run tax cut will not be _____________ in raising consumption, because
households just save the tax cut.
#13. Spending decisions are made on the basis of ____________ income.
#14. In our government budget constraint, the term DB refers to the change in
_______ ______________.
#15. There are basically _______ sources of funds for government to use.
#16. Governments don't really need to print money, the central bank just buys
___________ ____________ by creating reserves and thus increases high
_________ money. With more high powered money, H, the _______ supply,
Ms, increases.
#17. Taiwan's external _______ is low compared with ________ countries.
#18. The value of all government bonds outstanding is called the national _____.
#19. The letters VAT stand for _________ __________ _________.
#20. Another name for tariffs is ___________.
II. Use the correct form of the word given.
#1. (rise) I think that we should ________ taxes in order to slow
economic growth.
#2. (cut) The current administration has decided that __________ taxes is
not desirable because it might increase spending too much.
#3. (find) After income taxes were cut, the government ______ that saving
rose.
#4. (undertake) Monetary policy is __________ by the central bank.
#5. (provide, fail) The government _________ goods and services which the
private market ______ to adequately provide.
#6. (reduce) The object of __________ income taxes is to stimulate demand.
#7. (reduce) The _________ in income taxes was not successful at increasing
aggregate demand because permanent income did not change.
#8. (increase) The national debt ___________ significantly because of the
reduction in income taxes over the past few years.
#9. (represent) A net increase in the value of government bonds outstanding
________ a government deficit.
#10. (decrease) A _____________ in government spending, without an increase in
taxes, can be expected to increase the government surplus.
III. Write a clear explanation why cutting income taxes may not increase consumption.
(To write this explanation, you will need to explain the concept of
permanent income and its relation to private consumption)