econ 102 module 9

The use of discretionary fiscal policy is hampered by - i. difficulty of estimating the level of potential GDP. - ii. lack of accuracy of economic forecasts - .iii.the small impact tax cuts and increases in government expenditure have on aggregate demand.

D. i and ii

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

D. i, ii, and iii.

Does the figure above illustrate a recessionary or an inflationary gap? What do potential GDP and real GDPequal? 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. Inthe figure, potential GDP equals $20.5 trillion but real GDP equals only $20.0 trillion. In order to restore real GDPback to potential GDP using fiscal policy, the government could increase government expenditures on goods andservices and/or decrease taxes.

If the government increases spending to eliminate the recessionary gap portrayed in the above figure, the result is ________ price level and ________ government budget deficit.

A. a higher; a larger

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

B a balanced budget.

The law-making time lag is best described as the time that it takes

B. Congress to PASS laws needed to change taxes or spending.

The federal budget is defined as

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

During a recession, unemployment benefit payments increase without the need for anygovernment action. This increase is an example of

B. automatic fiscal policy.

If fiscal stimulus creates a large budget ________, then in the long run economic growth ________.

B. deficit; decreases

An economy is at a short-run equilibrium as illustrated in the above figure. An appropriateFISCAL policy option to move the economy to full employment is to

B. increase government expenditure and move the economy to a full-employment equilibrium at point b.

The supply-side effects show that a tax cut on labor income ________ employment and ________potential GDP.

B. increases; increases

The government has a budget surplus if

B. tax revenues are greater than outlays.

In 2009, Congress passed tax laws to reduce income tax rates for some taxpayers. This action is called

C. a discretionary fiscal policy.

3)In the United States for the year 2020, the federal government had a ________ so the national debt was ________.

C. budget deficit; increasing

An example of automatic fiscal policy is

C. expenditure for unemployment benefits increasing as economic growth slows.

Discretionary fiscal policy is defined as fiscal policy

C. initiated by an act of Congress.

The crowding out effect refers to the ________ from ________ in the government's budget deficit.

D. decrease in investment; an increase

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

D. deficit of $5 million.

Do automatic fiscal stabilizers eliminate business cycles?

E. No, but they do moderate business cycles.

If tax revenues are $230 billion and the government's outlays are $235 billion, then the budget

E. deficit is $5 billion and government debt will increase by $5 billion.

Discretionary fiscal policy is handicapped by

E. law-making time lags, estimation of potential GDP, and economic forecasting.

An increase in taxes on labor income shifts the labor supply curve ________, and the ________.

E. leftward; after-tax wage rate falls

The national debt is the amount

E. of debt outstanding that arises from past budget deficits.