Economics-Chapter 13

Refer to the diagram, in which Qf is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at

AD3

The group of three economists appointed by the president to provide fiscal policy recommendations is the

Council of Economic Advisers.

The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. If year 1 is the first year of this nation's existence and year 6 is the present year, this nation's public debt is

$275 billion.

The public debt for the economy is (table)

$460 billion.

In 2015, the U.S. public debt was about

18.2 TRILLION

Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The administrative lag of fiscal policy is reflected in events

3 and 4.

Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions (2015)?

34%

The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. The public debt declined in year

6.

Which of the following best describes the built-in stabilizers as they function in the United States?

Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

Which of the following best describes the idea of a political business cycle?

Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

Reductions in federal tax rates on personal and corporate income.

The public debt is held as

Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD3, it is experiencing

a positive GDP gap.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400,

the budget will be balanced. ✓

To say that "the U.S. public debt is mostly held internally" is to say that

the bulk of the public debt is owned by U.S. citizens and institutions.

The public debt is the amount of money that

the federal government owes to holders of U.S. securities.

Built-in stability means that

with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus.

The crowding-out effect is

strongest when the economy is at full employment.

An economist who favors smaller government would recommend

tax cuts during recession and reductions in government spending during inflation.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. In this economy,

tax revenues vary directly with GDP, but government spending is independent of GDP.

Refer to the diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD1 to AD2 is consistent with

an expansionary fiscal policy

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit

at any level of GDP below $400.

The amount by which government expenditures exceed revenues during a particular year is the

budget deficit.

The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a

budget deficit.

Which of the following did not contribute directly to the Great Recession?

bursting of the dot-com stock market bubble

Countercyclical discretionary fiscal policy calls for

deficits during recessions and surpluses during periods of demand-pull inflation.

Fiscal policy refers to the

deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

Refer to the diagram, in which Qf is the full-employment output. If the economy's present aggregate demand curve is AD2,

government should undertake neither an expansionary nor a contractionary fiscal policy.

The American Recovery and Reinvestment Act of 2009

implemented a $787 billion package of tax cuts and government expenditure increases.

Which combination of fiscal policy actions would most likely offset each other?

increase both taxes and government spending

The crowding-out effect of expansionary fiscal policy suggests that

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

Discretionary fiscal policy refers to

intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

Expansionary fiscal policy is so named because it

is designed to expand real GDP.

A contractionary fiscal policy is shown as a

leftward shift in the economy's aggregate demand curve.

The real burden of an increase in the public debt

may be very small or conceivably zero when the economy is in a severe depression.

Other things equal, an increase of corporate bonds from $140 billion to $150 billion in the economy would

not change the size of the public debt.

Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD3, it would be appropriate for the government to

reduce government expenditures or increase taxes.

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions, the government should

reduce tax rates and/or increase government spending.

Recessions have contributed to the public debt by

reducing national income and therefore tax revenues.

Refer to the figure. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to control demand-pull inflation?

shift aggregate demand by increasing taxes