Dynamic Study Module 16

Which of these is an example of an automatic stabilizer?

An unemployment benefit program

Which of these statements about the federal debt is correct?

At some point, the government may have to raise taxes or cut spending to pay interest on the debt.

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?

Individual income taxes and social security withholdings

Which of these statements is true about using fiscal policy to stabilize the economy?

The delay caused by the legislative process is typically longer for fiscal policy than for monetary policy.

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

The number of workers per retiree continues to decline.

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

automatic stabilizers

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

borrow funds from savers by selling U.S. Treasury securities.

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

budget surplus

All the programs that Congress authorizes on an annual basis, which are not automatically funded by the prior laws passed by Congress, are called __________.

discretionary spending

The tax multiplier equals the change in:

equilibrium GDP divided by the change in taxes.

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

expansionary fiscal policy.

Government policies that increase aggregate demand are called __________.

expansionary policies

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 cyclically adjusted budget deficit:

is measured as if the economy were at potential real GDP.

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

smaller

The national debt is best measured as the:

total value of U.S. Treasury securities outstanding.

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

transfer payments

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

crowding out.

When the tax rate increases, the size of the multiplier effect:

decreases.

Changes in the federal tax rate or changes in government spending designed to achieve some macroeconomic policy objective are known as:

fiscal policy.