Chapter 20

The national debt is the amount

of debt outstanding that arises from past budget deficits.

If real GDP exceeds potential​ GDP, to move the economy to potential GDP the Fed

raises the federal funds rate to decrease real GDP but not potential GDP.

Automatic changes in tax revenues and expenditures that occur as a result of fluctuations in real GDP are referred to as automatic

stabilizers.

Control of monetary policy rests with

the Federal Reserve.

The national debt is

the amount borrowed by the government to finance past budget deficits. Your answer is correct.

In the short​ run, when the Fed increases the federal funds rate

the real interest rate rises and investment decreases.

The balanced budget multiplier is based on the point that the​ ________ multiplier is larger than the​ ________ multiplier so that an equal increase in government expenditure and taxes​ ________ aggregate demand.

​expenditure; tax; increases

When tax revenues minus outlays is i. ​ positive, the government has a budget surplus. ii. ​ negative, the government has a budget deficit. iii. ​ zero, the government has a balanced budget.

​i, ii, and iii

When the Fed​ ________ the federal funds​ rate, the opportunity cost of​ firms' investment​ ________ and so the quantity of investment​ ________.

​increases; rises; decreases

If the Fed is concerned about a possible​ recession, it​ ________ the federal funds​ rate, which​ ________ the quantity of reserves and​ ________ the amount of bank loans.

​lowers; increases; increases

When tax revenue​ ________ outlays is​ negative, then the government has a budget​ ________.

​minus; deficit

If the Fed increases interest​ rates, other things remaining the​ same, foreigners demand​ ________ dollars thereby​ ________ the exchange rate.

​more; increasing

If the Fed is concerned about a possible​ recession, it​ ________ the federal funds​ rate, which​ ________ the quantity of reserves and​ ________ the amount of bank loans.

lowers; increases; increases

If the federal government has a budget​ deficit, then it is definitely the case that

government outlays exceed tax revenue

The FOMC is the

group within the Fed that makes monetary policy.

When tax revenue exceed the​ government's outlays, the budget

has a surplus and the national debt is decreasing.

The table above gives a​ nation's government outlays and tax revenues for 2012 through 2016. During which years did the country have a budget​ surplus?

2012 and 2013

The table above gives a​ nation's government outlays and tax revenues for 2012 through 2016. During which years did the country have a budget​ deficit?

2014 and 2016

When tax revenues equal government​ outlays, the situation is referred to as

a balanced budget.

In​ 2009, Congress passed tax laws to reduce income tax rates for some taxpayers. This action is called

a discretionary fiscal policy.

Discretionary fiscal policy is a fiscal policy​ action, such as

a tax​ cut, initiated by an act of Congress.

Fiscal policies that move the economy toward potential GDP without a change in policy are called

automatic stabilizers.

The balanced budget multiplier is based on the point that the​ ________ multiplier is larger than the​ ________ multiplier so that an equal increase in government expenditure and taxes​ ________ aggregate demand.

expenditure; tax; increases

If the Fed raises the federal funds rate

exports decrease and imports increase.

If a change in the tax laws leads to a​ $100 billion decrease in tax​ revenue, then aggregate demand

increases by more than​ $100 billion.

If government expenditures on goods and services increases by​ $20 billion, then aggregate demand

increases by more than​ $20 billion.