Macroeconomics CH 13 Reading

True or false: The up-sloping aggregate supply curve means that leftward shifts of AD result only in demand-pull inflation rather than increased output.

False; Demand-pull inflation results from rightward or upward shifts of the aggregate demand curve.

__________ fiscal policy is used in response to recession.

Expansionary

What type of fiscal policy was enacted in the form of the Economic Stimulus Act of 2008?

Expansionary fiscal policy

True or false: Governments rarely have significant problems in enacting and applying fiscal policy.

False

If investment demand is fixed and the interest rate rises from 6 to 10 percent as a result of servicing the public debt, what happens to private investment?

It declines

To whom does the United States owe the greatest portion of the public debt?

Itself

Fiscal policies of state and local government frequently worsen rather than correct recession or inflation. This is described as what?

Pro-cyclical

The average tax rate rises with GDP in what kind of tax system?

Progressive

Which of the following best describes the public debt of most industrialized nations?

Sometimes large

How would an economist describe concerns related to income distribution and foreign-owned public debt?

Substantive

A budget deficit is government spending in excess of what?

Tax revenues

As GDP rises during prosperity, what happens to tax revenues?

Tax revenues increase automatically.

Which of the following reduces household and business spending?

Taxes that restrain economic expansion

Which of the following is an example of a built-in stabilizer?

The U.S tax system

Which of the following is a potential flaw of fiscal policy?

The crowding-out effect

What happens to the price level when aggregate demand (AD) declines?

The price level remains the same.

Discretionary __________ policy consists of deliberate changes in government spending and taxation designed to achieve full employment, control inflation, and encourage economic growth.

fiscal

The crowding-out effect is a potential flaw or result of expansionary ______ policy.

fiscal

The federal government's purposeful manipulation of taxes and spending in order to "stimulate the economy" or "rein in inflation" is known as ______ policy.

fiscal

The manipulation of taxes and federal spending in order to stimulate the economy or reduce inflation is known as expansionary or contractionary ________ policy.

fiscal

The recognition, administrative, and operational lags are some of the problems faced by the government related to _______ policy.

fiscal

The _________ process magnifies the initial change in spending into successive rounds of new consumption spending.

multiplier

Further tax ________ were passed in 2002 totaling $122 billion over two years.

cuts

Which of the following are fiscal tools that a government may use to eliminate an inflationary GDP gap?

- Decrease government spending - A combination of both reduced government spending and higher taxes - Raise taxes

Economists recognize that governments may encounter a number of significant problems in doing what?

- Enacting fiscal policy - Applying fiscal policy

Discretionary fiscal policy consists of deliberate changes in government spending and taxation designed to do which of the following?

- Encourage economic growth - Achieve full employment - Control inflation

According to economists, which of the following are substantive and valid concerns related to the U.S. public debt?

- Foreign-owned public debt - Income distribution - Crowding out - Incentives

Which of the following tools of fiscal policy are used to positively stimulate an economy?

- Increased government spending - Tax reductions

Which of the following are lag problems faced by the government related to fiscal policy?

- Recognition - Operational - Administrative

Historically, which of the following are reasons that a large U.S. public debt might not threaten to bankrupt the federal government?

- Refinancing - Taxation

In 2018 payments on the federal debt amounted to what percentage of GDP?

1.8%

Anything that increases the government's budget deficit (or reduces its budget surplus) during a recession and increases its budget surplus (or reduces its budget deficit) during an expansion without requiring explicit action by policymakers is called what?

A built-in stabilizer

______ thought to be temporary may not increase present consumption spending and aggregate demand as much as expected because people are preparing for a higher tax rate in the future.

A tax cut

Why would a tax reduction thought to be temporary not increase present consumption spending and aggregate demand as much as expected?

Because people are preparing for the expected higher tax rate in the future

Other things equal, an increase in government spending will have what effect on an economy's aggregate demand curve?

Cause it to shift out rightward

The multiplier process magnifies the initial change in spending through successive rounds of what?

Consumption spending

When demand-pull inflation occurs, what kind of fiscal policy may help control it?

Contractionary

What is another term for restrictive fiscal policy?

Contractionary fiscal policy

A declining ________ leads to a tax receipt decline and moves the government's budget from surplus toward deficit.

GDP

Tax revenues automatically rise and the budget moves from deficit toward surplus as the economy moves toward a higher ______.

GDP

Increasing which of these will cause an increase in aggregate demand?

Government spending

______ due to the public debt is undesirable if greater income equality is one of society's goals.

Income redistribution Reason: In general, ownership of the public debt is concentrated among the wealthy. However, interest payments on the public debt is paid by all taxpayers including those who own very little or none of the public debt in the form of government securities or bonds. Therefore, income is redistributed from low-income to higher-income bond-holders.

_________ payments on the federal debt were 1.8% of GDP in 2018.

Interest

Expansionary fiscal policy is used in response to the economy being in what state?

Recession

With a large interest payment to service public debt, higher taxes may be required. What may be the result of higher taxes?

Reduced incentive to take risk, innovate, invest, and work

How do cyclically adjusted budget deficits compare in size to actual budget deficits?

They are smaller.

Why were tax cuts totaling $122 billion over two years passed in 2002?

To further boost the economy and offset the recession

True or false: It is common for countries to have public debts.

True

True or false: The United States owes a substantial portion of the public debt to itself.

True

True or false: The price level can remain stuck at its old level even when aggregate demand declines.

True

When tax revenues exceed government spending, it is called ______.

a budget surplus

Restrictive fiscal policy is also known as ___ fiscal policy.

contractionary

When demand-pull inflation occurs, a(n) ____________ fiscal policy may help control it.

contractionary

If the economy starts out with a balanced federal budget, a subsequent expansionary fiscal policy will create a ______.

budget deficit

Payments of public ____ to foreigners allows foreigners to buy some U.S. output.

debt

If the economy starts out with a balanced federal budget, a subsequent expansionary fiscal policy will create a budget ________.

deficit

The U.S. public debt is essentially the accumulation of all past federal _______ and ________.

deficits; surpluses

A decrease in aggregate ______ causes real GDP to decline.

demand

Policy changes that occur without congressional action are known as ______________, passive, or automatic.

discretionary

If greater income ________ is one of society's goals, then redistribution of income resulting from the public debt is undesirable.

equaltiy

The discretionary fiscal policy used to stimulate the economy is called ____________ fiscal policy.

expansionary

U.S. public debt held by foreigners is also known as ______ public debt.

external

An economy's potential output is also known as ______.

full-employment output

The multiplier effect causes the aggregate demand curve to shift by an amount ________ than an initial change in government spending.

greater

One way to increase aggregate demand is to _______ government spending.

increase

When Congress passed the stimulus package in 2008, it caused the size of the cyclically adjusted budget deficit to ________.

increase

With a large interest payment to service public debt, higher taxes may be required. Higher taxes may dampen incentives to bear risk, to innovate, to invest, and to work. These incentive reductions may ______.

indirectly impair economic growth

The up-sloping aggregate supply curve means that rightward shifts of aggregate demand result more in demand-pull _______ than in increased output.

inflation

The government may reduce government spending or increase taxes in order to eliminate a(n) ______.

inflationary GDP gap

Elected officials sometimes cause ______ business cycles in their attempts, through fiscal policy actions, to increase their chances of reelection.

political

Elected officials sometimes cause ________ business cycles in their attempts, through fiscal policy actions, to increase their chances of reelection.

political

An economy's ________ output is also known as full-employment output.

potential

In a(n) _______ tax system, the average tax rate rises with GDP.

progressive

The U.S. _____ debt is the total accumulation of the deficits (minus the surpluses) the federal government has incurred over time.

public

The total amount of money owed by the United States Treasury to holders of U.S. securities is the total ______.

public debt

A decrease in aggregate demand will cause a decrease in ______.

real GDP

An economy producing below potential output is considered to be operating in a(n) ______ gap.

recessionary

Other things equal, an increase in government spending will shift an economy's aggregate demand curve to the _____.

right

Tax revenues automatically ____ as GDP rises during prosperity.

rise

Tax revenues automatically _______ and the budget moves from deficit toward surplus as the economy moves toward a higher GDP.

rise

To positively stimulate an economy using fiscal policy, government spending should ______, and taxes should ______.

rise; fall

The total public debt represents the total amount of money owed by the federal government to holders of U.S. government __________.

securities

Cyclically adjusted budget deficits are generally ____________ than the actual budget deficits because actual budget deficits include cyclical deficits and cyclically adjusted budget deficits do not.

smaller

When an economy's output is _______ than its potential output, the gap is known as a recessionary gap.

smaller

A built-in __________ is anything that increases the government's budget deficit (or reduces its budget surplus) during a recession and increases its budget surplus (or reduces its budget deficit) during an expansion without requiring explicit action by policymakers.

stabilizer

Expansionary fiscal policy is used in order to ______ the economy.

stimulate

When the economy faces demand-pull inflation, fiscal policy should move toward a government budget ______.

surplus

A falling GDP leads to a tax receipt decline and moves the government's budget from ______ to ______.

surplus; deficit

The large U.S. public debt does not threaten to bankrupt the federal government for two main reasons: refinancing and _______.

taxation

The aggregate demand curve shifts by an amount greater than an initial change in government spending. This is caused by ______.

the multiplier effect

The built-in stability of an economy depends on ______.

the responsiveness of tax revenues to changes in GDP

Fiscal policies of state and local government are frequently pro-cyclical in that they ______ the economy.

worsen