ch 13 uga macro Econ weisen

Government payments to households for which no good or service is provided in return are called

government transfers.

Which of the following is NOT an argument AGAINST the use of expansionary fiscal policy? Government borrowing may reduce the marginal propensity to consume. If government debt gets too big, it runs the risk of becoming unable to repay its loans, which could result in default. Government spending may crowd out private spending. Government budget deficits may lead to reduced private spending. Government borrowing may crowd out private investment spending.

Government borrowing may reduce the marginal propensity to consume.

(Figure: Short- and Long-Run Equilibrium II) Look at the figure Short- and Long-Run Equilibrium II. Which of the following would be the appropriate response on the part of the government upon viewing the state of the economy?

Raise tax rates to close the inflationary gap.

Consider the following statement: "Perfect Ricardian Equivalence makes expansionary fiscal policy completely ineffective because households decrease consumer spending and save more in preparation for higher future taxes." Which of the following is NOT an appropriate rebuttal of that statement?

Ricardian Equivalence tends to not matter as much during a recession, because in a recession caused by a negative demand shock, there is typically a reduction in the aggregate price level and a reduction in the interest rate.

Over the past few decades in the United States, large federal budget deficits most often have been caused by:

a depressed economy

Say, as a governmental rule, taxes are assessed as a percent of income and that percent does not change over time. If incomes rise during an inflationary gap you will see an automatic increase in tax revenue. This is an example of:

an automatic stabilizer.

What can the federal government do to finance a deficit?

borrow funds

The 2009 American Recovery and Reinvestment Act was an example of:

both discretionary and expansionary fiscal policy.

Assume taxes are assessed as a rate that does not change over time. Also assume that the dollar amount of an unemployment check does not change over time. When the economy falls into a recession, tax revenue automatically _____ and unemployment insurance payments automatically _____.

decreases; increase

contractionary fiscal policy includes:

decreasing government spending on goods and services.

The federal budget tends to move toward _____ as the economy ____.

deficit; contracts

A change in taxes or a change in government transfers indirectly affects consumer spending through its effect on:

disposable income

Discretionary fiscal policy refers to changes in:

government spending, transfers, or taxes due to deliberate actions by policy makers to close a recessionary or inflationary gap.

Look at the figure Inflationary and Recessionary Gaps. A movement from AD1 to AD3 could be caused by:

increased government purchases.

Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD:

no change in discretionary fiscal policy is warranted.

If government debt is $12 billion and the GDP is $16.7 billion, then the debt to GDP ratio is:

72%

Which of the following fiscal policies would make a budget surplus smaller or a budget deficit larger? an increase in government purchases of goods and services higher taxes lower government transfers lower interest rates

an increase in government purchases of goods and services