ECON 2301 FINAL Chapter 16

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

a balanced budget

the federal budget is defined as

an annual statement of expenditures and tax revenues of the U.S government

An increase in Medicaid expenditure brought about by a flu epidemic

automatic fiscal policy because no action of Congress was necessary for this increase to occur.

an increase in unemployment benefits paid during a recession

automatic fiscal policy because no action of Congress was necessary for this increase to occur.

if the United States for the year 2017, the federal government had a __________________ so the national debt was __________________.

budget deficit ; increasing

the use of the federal budget to achieve macroeconomics objectives of full employment and sustainable economic growth is

called fiscal policy

Government expenditure ____________________ change potential GDP and taxes __________________ change potential GDP.

can; can

When government outlays exceed tax revenues, the situation is called as budget

deficit

the government collects tax revenues of $100 million and has $105 million in outlays. The budget balances is a

deficit of $5 million

a cut in farm subsidies

discretionary fiscal policy because an act of congress was required.

an increase in expenditure on homeland security

discretionary fiscal policy because the spending must be approved by an act of Congress

When comparing a $100 billion increase in government expenditure to a $100 billion decrease in tax revenue, the effect of the increase in government expenditure on aggregate demand is

greater than the effect of the tax decrease

When the government's expenditures exceed its tax revenues, the budget

has a deficit and the national debt is increasing

When tax revenues exceed the government's outlays, the budget

has a surplus and the national debt is decreasing

Suppose the shift from AD 0 to AD 1 and from AS 0 to AS 1 is the result of fiscal policy. When of the policies below could lead to these shifts? (has a graph) i. an increase in government expenditure ii. a tax cut iii. a decrease in government expenditure iv. a tax hike

i and ii

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

i, ii, and iii

transfer payments include i. social security benefits ii. medicare and medicaid benefits iii. unemployment benefits

i, ii, and iii

An increase in government expenditure can ____________________ potential GDP and an increase in taxes can _________________ potential GDP.

increase; increase

if the government expenditure on goods and services increase by $100

increases by more than $100 billion

if the government expenditures on goods and services increased by $20 billion, then aggregate demand

increases by more than $20 million

When the government's outlays equal its tax revenues, then the budget

is balanced

to eliminate this fiscal imbalance the government could

lower benefits and increase tax rates

When tax revenues _________________ outlays is negative, then the government has a budget ________________.

minus; deficit

When tax revenues ____________________ outlays is positive, then the government has a budget _______________.

minus; surplus

if the federal government has a budget surplus, then it is definitely the case that

tax revenue exceeds government outlays

The government has a budget surplus if

tax revenues are greater than outlays

If the income tax rate is 20 percent and the tax rate on consumption expenditure 15 percent, then the tax wedge is

35 percent

Does the figure above illustrate a recessionary or an inflationary gap? What do potential GDP and real GDP equal? What is an appropriate fiscal policy to restore real GDP to potential real GDP?

A recessionary gap occurs when real GDP is less than potential GDP; which is precisely what the figure illustrates. In the figure, potential GDP equals $16.5 trillion but real GDP equals only $16.0 trillion. In order to restore real GDP back to potential GDP using fiscal policy, the government could increase government expenditures on goods and services and/ or decrease taxes.

Decreased expenditures on national defense during peace time

Discretionary fiscal policy because the spending change must be approved by an act of Congress

Suppose that in an economy, investment is $400 billion, saving is $400 billion, tax revenues are $500 billion, exports are $300, and imports are $200 billion. Calculate government expenditure and the government's budget balance.

Government expenditure- $400 billion (G= S-I+T+M-X Budget Balance- $100 billion ($500billion -$400billion)