Chapter 16 Quiz

Refer to the diagram to the right. An increase in taxes would be depicted as a movement from _____, using the static AD - AS model.

B to A

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

An increase in individual income taxes ______ disposable income, which ______ consumption spending.

Decreases; decreases

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.

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

The largest and fastest - growing category of federal government expenditures is

Transfer Payments

Suppose the economy is in short run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long run equilibrium. Using the static AD - AS model in the diagram to the right, this would be depicted as a movement from

A to B.

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

Fiscal Policy Refers To Changes In

Federal taxes and purchases that are intended to achieve macroeconomic policy objectives

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

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

Automatic stabilizers refer to

Government spending and taxes that automatically increase or decrease along with the business cycle.

Which of the following is an objective of fiscal policy?

High rates of economic growth

A recession tends to cause the federal budget deficit to _______ because tax revenues _______ and government spending on transfer payments __________.

Increase; fall; rise

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