Lesson 1

The government can use _____________ in the form of ____________________ to increase the level of aggregate demand in the economy.

A. an expansionary fiscal policy; an increase in government spending

If an economy moves into a recession, causing that country to produce less than potential GDP, then:

A. automatic stabilizers will cause tax revenue to decrease and government spending to increase.

A ______________________ is created each time the federal government spends more than it collects in taxes in a given year.

A. budget deficit

When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting:

A. discretionary fiscal policy.

Currently, the US government accumulated debt to GDP ratio:

A. is lower than its historical high point.

A ______________________ means that government spending and taxes are equal.

B. balanced budget

If the state of Washington's government collects $75 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be a:

B. budget surplus.

The time lag for monetary policy is typically ________________ the time lag for fiscal policy.

B. shorter than

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.

B. smaller deficit

If the economy is producing less than its potential GDP, _____________________ will show a larger deficit than the actual budget.

C. the standardized employment budget

If Canada's economy moves into an expansion while its economy is producing more than potential GDP, then:

D. automatic stabilizers will decrease government spending and increase tax revenue.

The current level of US government accumulated debt, when measured in nominal dollars:

D. has remained steady for the past decade.

If government tax policy requires Peter to pay $15,000 in tax on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is:

D. regressive.

The US government has never had a surplus.

B. False

The federal debt will not be a burden for future generations.

B. False

If individual income tax accounts for more total revenue than the payroll tax in the U.S., why would over half the households in the country pay more in payroll taxes than in income taxes?

B. income tax is a progressive tax

_____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation.

C. Automatic stabilizers

If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used?

D. expansionary

Assume that laws have been passed that require the federal government to run a balanced budget. During a recession, the government will want to implement _____________________, but may be unable to do so because such a policy would ____________________________.

D. expansionary fiscal policy; lead to a budget deficit

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 ____________________.

D. regressive