Government budget and fiscal policy ch.17

individual income tax

a tax based on the income, of all forms, received by individuals

payroll tax

a tax based on the pay received from employers; the taxes provide funds for Social Security and Medicare

balanced budget

when government spending and taxes are equal

budget deficit

when the federal government spends more money than it receives in taxes in a given year

At the beginning 2010, the government of Norway had no debt and held $180 billion dollars in its sovereign fund. To stimulate its economy during 2011, Norway's government plans to spend $35 billion more than it will collect in tax revenue and in 2012, its spending will exceed tax revenues by $25 billion. What will the total government debt equal at the end of 2012? $60 billion $0 $120 billion $180 billion

$0

A government annually collects $230 billion in tax revenue and allocates $29 billion to its universal healthcare spending. What percentage of this government's budget is spent on healthcare? 12.60% 26.63% 16.43% 21.90%

12.60%

A government collects $600 billion annually in tax revenue. Each year it allocates $35 billion to healthcare and $50 billion for education. What percentage of annual tax revenue is allocated to these two categories of government spending? 21.37% 14.16% 17.51% 26.41%

14.16%

_____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation. Standardized employment budgets Discretionary fiscal policies Automatic stabilizers Budget expenditures

Automatic stabilizers

corporate income tax

a tax imposed on corporate profits

regressive tax

a tax in which people with higher incomes pay a smaller share of their income in tax

excise tax

a tax on a specific good—on gasoline, tobacco, and alcohol

estate and gift tax

a tax on people who pass assets to the next generation—either after death or during life in the form of gifts

progressive tax

a tax that collects a greater share of income from those with high incomes than from those with lower incomes

proportional tax

a tax that is a flat percentage of income earned, regardless of level of income

During a recession, if a government uses an expansionary fiscal policy to increase GDP, the: aggregate supply curve will shift to the right. aggregate supply curve will shift to the left. aggregate demand curve will shift to the left. aggregate demand curve will shift to the right.

aggregate demand curve will shift to the right.

The federal government levies _____________________________ on people who pass assets ____________________________, either after death or during life. an estate and gift tax; to the next generation a regressive tax; to non-family members an excise tax; to their children a progressive tax; to non-family members

an estate and gift tax; to the next generation

A consensus estimate based on a number of studies suggests that if there is an increase in budget deficits (or a fall in budget surplus) by 1% of GDP, it will most likely cause which of the following? an increase of 0.5-1.0% in the long-term interest rate long and variable time lags in enacting the fiscal policy smaller impact due to temporary fiscal policy output above the potential GDP output level

an increase of 0.5-1.0% in the long-term interest rate

If Canada's economy moves into an expansion while its economy is producing more than potential GDP, then: government spending and tax revenue will increase because of automatic stabilizers. government spending and tax revenue will decrease because of automatic stabilizers. automatic stabilizers will increase government spending and decrease tax revenue. automatic stabilizers will decrease government spending and increase tax revenue.

automatic stabilizers will decrease government spending and increase tax revenue.

A typical ____________________________ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes. expansionary contractionary discretionary standardized

contractionary

In 2010, Microsoft will pay corporate income tax to the federal government based on the company's __________________. proportional tax rate corporate profits optional tax rate excise profits

corporate profits

When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting: discretionary fiscal policy. progressive fiscal policy. regressive fiscal policy. fiscal policy.

discretionary fiscal policy.

crowding out

federal spending and borrowing causes interest rates to rise and business investment to fall

Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing? financial policies monetary policies fiscal policies economic policies

fiscal policies

contractionary fiscal policy

fiscal policy that decreases the level of aggregate demand, either through cuts in government spending or increases in taxes

expansionary fiscal policy

fiscal policy that increases the level of aggregate demand, either through increases in government spending or cuts in taxes

By June, 2010, the U.S. government owed $13.6 trillion dollars ________________ that, over time, has remained unpaid. from decreases in excise tax from decreases in income tax in accumulated government debt from decreases in corporate tax

in accumulated government debt

If a country's GDP increases, but its debt decreases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes. increase or decrease decrease because its debt decreased increase because GDP increased decrease

increase or decrease

marginal tax rates

or the tax that must be paid on all yearly income

A __________________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes. proportional tax regressive tax progressive tax excise tax

progressive tax

If South Dakota's governor reports a budget surplus in 2011, that state government likely: received more in taxes than it spent in that year. increased the proportional tax level. equalized spending and taxes in that year. increased the corporate income tax rate.

received more in taxes than it spent in that year.

When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is ____________________. optional proportional progressive regressive

regressive

When a country's economy is producing at a level that exceeds its potential GDP, the standardized employment budget will show a __________________ than the actual budget. smaller surplus smaller deficit larger deficit surplus

smaller deficit

automatic stabilizers

tax and spending rules that have the effect of slowing down the rate of decrease in aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation

standardized employment budget

the budget deficit or surplus in any given year adjusted for what it would have been if the economy were producing at potential GDP

discretionary fiscal policy

the government passes a new law that explicitly changes overall tax or spending levels with the intent of influencing the level or overall economic activity

implementation lag

the time it takes for the funds relating to fiscal policy to be dispersed to the appropriate agencies to implement the programs

recognition lag

the time it takes to determine that a recession has occurred

legislative lag

the time it takes to get a fiscal policy bill passed

national debt

the total accumulated amount the government has borrowed, over time, and not yet paid back

When increasing oil prices cause aggregate supply to shift to the left, then: unemployment and inflation decrease. unemployment decreases and inflation increases. unemployment and inflation increase. unemployment increases and inflation decreases.

unemployment and inflation increase.

When inflation begins to climb to unacceptable levels in the economy, the government should: use contractionary fiscal policy to shift aggregate demand to the right. use contractionary fiscal policy to shift aggregate demand to the left. use expansionary fiscal policy to shift aggregate demand to the right. use expansionary fiscal policy to shift aggregate demand to the left.

use contractionary fiscal policy to shift aggregate demand to the right.

budget surplus

when the government receives more money in taxes than it spends in a year