Fiscal Policy
Which of these fiscal policy actions will increase real GDP in the short run?
An increase in government expenditure on goods and services
Every time the federal government runs a budget deficit, it must
Borrow
If the federal government's outlays are less than its tax revenue, there is a
Budget surplus
Which of these is an example of an automatic stabilizer?
An unemployment benefit program
Which type of fiscal policy would cause the move of the AD outward
Higher government expenditure on goods and services
Which of these would be a fiscal policy the government might use if real GDP exceeded potential GDP and the government wanted to move real GDP closer to potential GDP?
Increasing income tax rates
Which of these are the largest sources of federal government revenues?
Personal income taxes and social security taxes
The tax multiplier is __________ in absolute value than the government expenditure multiplier.
Smaller
The tax multiplier equals the effect of a change in taxes on
aggregate demand.
Taxes and transfer payments that stabilize GDP without requiring explicit actions by policymakers are called
automatic stabilizers
Changes in tax rates impact the economy by changing
both aggregate demand and aggregate supply.
The American Recovery and Reinvestment Act of 2009 is a clear example of
discretionary fiscal policy
When the economy is in a recession, the government can
increase government expenditure on goods and services or decrease taxes in order to increase aggregate demand.
Budget deficits automatically __________ during recessions and __________ during expansions.
increase, decrease
The structural budget balance
is the budget balance that would occur if the economy were at potential real GDP.
According to supply-side theory, fiscal policymakers can combat the impact of recessions by
lowering tax rates
The largest category of federal outlays is
transfer payments
The decrease in private investment that results from an increase in the government budget deficit is known as
Crowding out
