ECON 103 - Chapter 10: Fiscal Policy and Debt
If Amanda has an income of $40,000 and disposable income of $30,000, how much does she pay in taxes?
$10,000
How much is government spending if asset sales are $200 billion, the money supply grows by $500 billion, the government sells $1 trillion in bonds, and tax revenues are $500 billion?
$2.2 trillion
The amount by which annual government spending exceeds tax revenue is called:
the deficit
Today, interest on the debt as a percentage of GDP is close to the level it was in the:
1950s
By how much did President Kennedy reduce the top income tax rate?
20%
What is one of the dangers of a country having high debt as a percentage of GDP?
A country may default on the debt.
Suppose policymakers wish to use fiscal policy to fight inflation. Which statement, then, is MOST accurate?
Essentially, the way to lower the inflation rate is to decrease aggregate demand, causing a rise in unemployment.
Which of the following is a supply-side fiscal policy?
Grants for basic research
After the elections of 2010, the U.S. Senate remained controlled by the Democrats, but the majority of the House of Representatives became Republican. You might expect that this would increase the _____ lag associated with fiscal policy.
decision
When the federal government pays off debt to the Federal Reserve, what happens to the quantity of money in circulation?
It decreases.
Which of the following countries has the highest debt as a percentage of GDP?
Japan
Which of the following groups must agree in order to implement fiscal policy?
the Senate, House of Representatives, and executive branch
_____ government spending, _____ transfer payments, and _____ taxes are all examples of contractionary fiscal policy.
Reducing; reducing; raising
The largest category of federal government spending in 2015 was:
Social Security
Which of the following was the largest federal government outlay in 2015? Please choose the correct answer from the following choices, and then select the submit answer button.
Social Security
(Figure: Laffer Curve 3) A supply-side economist is advocating reducing income tax rates. She is probably assuming that the economy is at point _____ in the graph.
d. top point
What does it mean for a fiscal policy to be sustainable?
The present value of all projected future revenues must be equal to the present value of projected future spending.
According to the Laffer curve, an increase in tax rates will lead to:
an increase, a decrease, or no change in tax revenue.
_____ are highly liquid, providing the closest thing there is to risk-free returns.
Treasury bills
Which of the following items is NOT public debt?
U.S. dollars
When workers lose their job, they file for unemployment benefits; therefore government spending on such programs naturally rises during recessions. As the economy recovers and people go back to work, spending on unemployment programs shrinks. Based on the given information, which of the following is correct?
Unemployment compensation is a form of an automatic stabilizer.
Compared with demand-side fiscal policy, supply-side fiscal policy:
can take a long time to work
If a government collects $1,400 in tax revenue and spends $1,600, it has:
a deficit of $200.
The solution to simultaneous deflation and unemployment is to shift the:
aggregate demand curve to the right
In 2016, the percentage of the publically held national debt owned by foreigners was:
almost equal to the percentage held by the U.S. public.
Which of the following would be viewed as a disadvantage associated with contractionary fiscal policy?
decreased employment
Presidents Kennedy and Reagan each implemented a policy of supply-side economics. What did this mainly entail?
decreasing marginal tax rates
Most of the debt of many developing countries is:
externally held
In February 2009, Congress approved a $787 billion stimulus package. By March 30, 2011, $633.5 had been spent. This illustrates _____ lag.
implementation
Which of the following policies do supply-side economists believe is the best for increasing the standard of living?
increasing investment in capital that boosts worker productivity
The largest source of federal government revenues is:
individual income taxes
An expansionary fiscal policy can result in:
inflation and higher GDP.
The _____ lag is the time policymakers must wait for economic data to be collected, processed, and reported.
information
The _____ lag is the time policymakers must wait for economic data to be collected.
information
Economists at the Bureau of Economic Analysis are busy collecting data for the quarterly growth estimates, which will indicate the health of the economy. The time spent collecting this data and generating reports is the:
information lag
Economists at the Bureau of Labor Statistics are busy collecting data for the unemployment reporting, which will indicate the health of the labor market. The time spent collecting this data and generating reports is the:
information lag
As a percentage of the federal government budget, mandatory spending:
is larger than discretionary spending.
According to public choice theorists, deficit spending:
is undertaken as a politically palatable way of funding programs.
Foreign governments purchase U.S. debt to:
keep their currencies from rising relative to the U.S. dollar.
The focus of supply-side fiscal policies is on:
long-run economic growth.
One difficulty in using the Laffer curve as a rationale for policy decisions is that:
one can't be sure where current tax rates fall on the curve.
During World War II, _____ exceeded GDP.
public debt
In September 2010, the National Bureau of Economic Research announced that the recession that began in December 2007 ended in June 2009. This illustrates _____ lag.
recognition
Which of the following is an example of contractionary fiscal policy?
reducing military spending
The crowding-out effect recognizes that if the government sells bonds to finance spending, it can cause interest rates to _____ investment.
rise, thereby reducing
Fiscal policy that focuses on shifting the long-run aggregate supply curve to the right is:
supply-side fiscal policy.
