Chapter 30 Macroeconomics

Which of these fiscal policy actions will increase real GDP in the short run?

An increase in government expenditures

Which of these is an example of an automatic fiscal policy?

An unemployment benefit program

According to the graph, if the solid line represents the GDP without policy and the dotted line includes policy, which side shows an inappropriate stabilization policy?

B

Which of these would be a fiscal policy the government might want to use if the economy is operating at too high a level of output?

Increasing income tax rates

Which of these are the largest sources of federal government revenues?

Personal income taxes and Social Security taxes

Which of these best represents the impact of a decrease in government spending through the multiplier process?

The shift from c to b, and then to a

What happens when government spending is greater than government tax revenues?

There is borrowing by the government and the government debt rises.

The time between when an economic problem begins and policymakers determine there is a need for fiscal policy is known as:

a recognition lag.

Taxes and transfer payments that stabilize GDP without requiring explicit actions by policymakers are called __________.

automatic fiscal policy

Every time the federal government runs a budget deficit, the government must:

borrow, which adds to the government debt.

Changes in tax rates impact the economy through:

both aggregate demand and aggregate supply.

Supply-side economists point to the Laffer curve as evidence that higher taxes:

can lead to lower overall government revenues.

The decline in private expenditures that results from an increase in government borrowing is known as:

crowding out.

Which of these is the main reason for the long-run funding problems of Social Security?

demographic changes

The American Recovery and Reinvestment Act of 2009 is a clear example of:

discretionary fiscal stimulus.

Government policies that increase aggregate demand are called __________.

fiscal stimulus

One of the primary goals of most governments with regard to the economy is:

full employment

When the economy is at full employment, a cut in household taxes will __________.

increase consumption

When the economy is in a recession, the government can:

increase government purchases or decrease taxes in order to increase aggregate demand.

Budget deficits automatically __________ during recessions and __________ during expansions.

increase, decrease

The structural budget deficit or surplus:

is measured as if the economy were at full employment.

Most economists would __________ a balanced federal budget mandate.

not be in favor of

We would expect the tax multiplier to be __________ in absolute value than the government purchases multiplier.

smaller

The government debt is best measured as the:

sum of past budget deficits minus the sum of past budget surpluses.

Many economists believe that tinkering with the economy via discretionary fiscal policy is not effective due to:

the presence of time lags

Many economists believe that increases in government debt are not necessarily problematic if the funds are used:

to build infrastructure.

The largest and fastest growing category of federal expenditures is __________.

transfer payments

__________ maintains that tax policy can either create or destroy incentives to work, save, and invest.

Supply-side theory

Supply-side economics emphasizes the role that __________ play in the supply of output in the economy.

taxes

A government that spends more than it collects in taxes experiences a:

budget deficit

If the federal government's expenditures are less than its revenue, there is a __________.

budget surplus

Which of the following statements about U.S. government receipts is correct?

Federal receipts have ranged between 15 and 20 percent of gross domestic product for the past few decades.

In 2008, spending on Social Security, Medicare and Medicaid was less than 10% of the GDP. By 2030 this amount is expected to be around 17% of GDP. One government option to solve this problem is to:

decrease benefits