Econ Ch 13

Social Security and Medicare are "pay-as-you-go" plans. This means that

most of the current revenues from the Social Security tax are paid to current Social Security retirees

The Federal Reserve and Federal government agencies hold more than three-fourths of the public debt

F

The total public debt is more relevant to an economy than the public debt as a percentage of GDP

F

The standardized budget measures what the Federal deficit or surplus would be if the economy reached the _______ level of GDP.

full-employment

Refinancing of the public debt might drive up real interest rates because

government borrowing to finance the debt increases demand for funds and competes with private borrowing

What type of tax system would have the most built-in stability?

A progressive tax because it increases at an increasing rate as incomes rise, thus having more of a dampening effect on rising (or falling) incomes.

As a percentage of GDP, the total U.S. public debt is the highest such debt among the world's advanced industrial nations

F

What are the two ways to measure the public debt?

Its absolute dollar size and as a percentage of GDP

Some politicians have suggested that the United States enact a constitutional amendment requiring that the Federal government balance its budget annually. Such an amendment, if strictly enforced, would force the government to enact a contractionary fiscal policy whenever the economy experienced a severe recession.

Net tax revenue falls and transfer payments rise. Balancing the budget would require lowering transfer payments and raising taxes

An internally held public debt is like a debt of the left hand owed to the right hand

T

The portion of the U.S. debt held by the public (and not by government entities) was larger as a percentage of GDP in 2009 than it was in 2000

T

For a person who thinks the public sector is too large, the fiscal options for ending severe demand-pull inflation would include

a cut in government spending.

For a person who wants to preserve the size of government, the fiscal options for ending severe demand-pull inflation would include

an increase in taxes.

Social Security and Medicare trust funds are

assets held by these programs to help pay for future projected tax revenue shortfalls

An internally held debt is one in which the

bondholders live in the nation having the debt

Expectations of a near-term policy reversal weaken fiscal policy because

consumers may hesitate to increase their spending because they believe that tax rates will rise again.

If the standardized budget is balanced, the

government is not engaging in either expansionary or contractionary policy

Refinancing of the public debt might cause

higher interest rates that can lower investment and economic growth.

Paying off an externally held debt

may lower the dollar exchange rate.

The ratchet effect makes anti-inflationary policy

more difficult

Paying off an internally held debt would

not burden the economy as a whole

A political business cycle is the concept that

politicians are more interested in reelection than in stabilizing the economy

The government's fiscal policy options for ending severe demand-pull inflation include

reducing government spending, increasing taxes, or both.

The crowding-out effect is the

reduction in investment spending caused by the increase in interest rates, arising from an increase in government spending.

Refinancing the public debt means

selling new bonds to retire maturing bonds.

Built-in, or automatic, stabilizers work by changing ______ so that GDP changes are reduced.

taxes and government payouts

The distinction between the absolute and relative sizes of the public debt is important because

the absolute size doesn't tell you about an economy's capacity to repay the debt

Consider the following statement: "Although fiscal policy clearly is useful in combating the extremes of severe recession and demand-pull inflation, it is impossible to use fiscal policy to fine-tune the economy to the full-employment, noninflationary level of real GDP and keep the economy there indefinitely." This statement recognizes that

the impact of fiscal policy will affect the economy differently depending on the timing of the policy and the severity of the situation