chapter 16 econ
After September 11, 2001, the federal government increased military spending on wars in Iraq and Afghanistan. Is this increase in spending considered fiscal policy?
No. The increase in defense spending after that date was designed to achieve homeland security objectives.
Government transfer payments include which of the following?
Social Security and Medicare programs
Which of the following would be classified as fiscal policy?
The federal government cuts taxes to stimulate the economy.
To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the
budget deficit or surplus as a percentage of GDP.
The largest and fastest-growing category of federal government expenditures is
transfer payments.
Does government spending ever reduce private spending?
yes, due to crowding out
An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.
decrease; rise; fall
An increase in individual income taxes ________ disposable income, which ________ consumption spending.
decreases; decreases
What is the difference between federal government purchases (spending) and federal government expenditures?
Government purchases are included in government expenditures.
When is it considered "good policy" for the government to run a budget deficit?
When borrowing is used for long-lived capital goods.
What are the gains to be had from simplifying the tax code?
all of the above a) increased efficiency of house holds and firms b) greater clarity of the decisions made by house holds and firms c) resources from the tax preparation industry freed up from other endeavors
In the long run, increases in government purchases result in
complete crowding out.
The simple multiplier effect shows the resulting change in real GDP due to an increase in government purchases or a decrease in taxes assuming that the price level is _______. In reality, the SRAS is ________. As a result, when AD shifts to the right, in reality the change in real GDP will be ________ it would be if the price level were constant.
constant upward sloping less than
One-time tax rebates, such as those in 2001 and 2008, increase consumption spending by less than a permanent tax cut because one-time tax rebates increase
current income.
The multiplier effect is only a consideration for increases in government purchases.
false
Fiscal policy refers to changes in
federal taxes and purchases that are intended to achieve macroeconomic policy objectives.
An increase in government purchases will increase aggregate demand because
government expenditures are a component of aggregate demand.
Congress and the president carry out fiscal policy through changes in
government purchases and taxes.
If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in
government purchases.
Each year that the federal government runs a deficit, the federal debt Each year that the federal government runs a surplus, the federal debt
grows, shrinks
Which of the following is an objective of fiscal policy?
high rates of economic growth
Expansionary fiscal policy involves
increasing government purchases or decreasing taxes.
Which of the following would not be considered an automatic stabilizer?
legislation increasing funding for job retraining passed during a recession
According to the multiplier effect, an initial increase in government purchases increases real GDP by ____________ the initial increase in government purchases.
more than
the higher the tax rate, the _____ the multiplier effect.
smaller
For the federal deficit to be lowered,
the federal government's expenditures must be lower than its tax revenue.
The federal government debt equals
the total value of U.S. Treasury bonds outstanding.
Policy that is specifically designed to affect aggregate supply and increase incentives to work, save, and start a business, by reducing the tax wedge
supply-side economics.
The figure to the right illustrates the economy using the Dynamic Aggregate Demand and Aggregate Supply Model LOADING... What would be the federal government's reaction if actual real GDP in 2006 occurs at point B and potential GDP occurs at LRAS 06? That is, what step can we expect the federal government to take to control inflation in the second period?
Answer: all of the above a)increase taxes on business b)contradictionary policy c) decrease government spending on goods and services
The figure to the right illustrates the dynamic AD-AS model LOADING.... Suppose the economy is in equilibrium in the first period at point (A). In the second period, the economy reaches point (B). We would expect the federal government to pursue what type of policy in order to move AD 2 to AD Subscript 2 comma policy and reach equilibrium (point C) in the second period? If the federal government's policy is successful, what is the effect on the following macroeconomic indicators?
Expansionary fiscal policy actual real GDP: inc Potential real GDP: doesn't change Price level: inc Unemployment: dec
The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of
automatic stabilizers.
