macro test 2 (6)

an automatic stabilizer is a provision in the budget that causes

a government spending to rise or taxes to fall automatically when GDP falls

a social security system in which all payroll taxes that workers and their employers pay in go directly to retirees and other beneficiaries is known as

a pay as you go system

in a recession, which deficit concept tends to rise relative to the other one, the full employment deficit or the actual deficit

actual deficit

what are the three main ways that fiscal policy affects the macroeconomy

aggregate demand effects; government capital formation; incentive effects

taxes distort economic behavior because they

cause deviations in economic behavior form the efficient, free market outcome

deficits are a burden on future generations if they

cause national saving to fall

for the past 35 years, which category of US federal, state, and local government tax receipts has been the smallest

corporate profit taxes

the primary current deficit is

current expenditures - net interest - tax revenues

a decrease in the average tax rate, with the marginal tax rate held constant, will

decrease the amount of labor supplied at any real wage

an increase in the marginal tax rate, with the average tax rate held constant, will

decrease the amount of labor supplied at any real wage

the relationship between the government deficit and the change in the monetary base is

deficit equals change in government debt held by the public plus change in monetary base

in what ways is the government debt a potential burden on future generations

distortions from higher future tax rates and lower future capital

the ___ deficit is unaffected by the state of the economy, while the actual deficit ___ relative to the full employment deficit in recession and ___ relative to the full employment deficit in expansions

full employment; rises; falls

a government will have a primary current deficit that is smaller than its primary deficit if

government investment is positive

which of the following would not act as an automatic stabilizer: unemployment insurance personal income taxes corporate income taxes government purchases

government purchases

what are the major components of government outlays

governments purchases, transfer payments, and net payments

classical economists think that lump sum tax changes

have no effect because of ricardian equivalence

what would likely happen if the government tries to raise more seignorage revenue than the maximum possible amount

hyperinflation

discuss 4 reasons why the ricardian equivalence proposition isn't likely to hold exactly

if people face borrowing constraints, if they are shortsighted, if they fail to leave bequests, or if taxes aren't lump sum

what is the relationship between ricardian equivalence and the idea that government debt is a burden

if the ricardian equivalence proposition is valid, a tax cut does not cause consumption to rise, so there is no change in national saving

state governments in the US can raise revenue by all the following means except

increasing the money supply

state and local governments rely on ___ as their primary source of tax receipts

indirect business taxes

the political process by which the fiscal policy is made

is slow and results in a long time lag for fiscal policy

government capital consists of

long lived physical assets owned by the government

compared with most other OECD countries, how high is the ratio of US government spending to GDP

lower than most other OECD countries

the inflation tax is primarily a tax on

money

how does the composition of the federal governments outlays and revenues differ from that of state and local governments

most spending on nondefense goods and services is done by state and local governments

the advantage of automatic stabilizers over legislated changes in spending and taxes is that they ____, while legislation

occur quickly; takes a long time to put in place

for the past 35 years, which category of US federal, state, and local government tax receipts has been the largest

personal taxes

the largest source of tax receipts for the government is

personal taxes

what are the major sources of government revenues

personal taxes, contributions for social insurance, indirect business taxes, and corporate taxes

because of automatic stabilizers, in recessions the government budget deficit ____, while in expansions the deficit ____

rises; falls

the revenue that the government raises by printing money is called

seignorage

the stimulus package of 2009 had the effect of

significantly raising the debt to GDP ratio

net interest payments by the government are usually

small and sometimes negative for state and local governments, but large and positive for the federal government

the current deficit is

the deficit minus government investment

the marginal tax rate is

the fraction of an additional dollar of income that must be paid in taxes

which concept of the government budget deficit indicates what the government budget deficit would be if the economy were operating at its full employment level

the full employment deficit

in which case would you be most likely to expect inflation to occur

the government funds its sustained deficit by increasing the money supply

a government will have an overall deficit that is smaller than its primary deficit if

the governments net interest payments are negative

in an all currency economy in which real output and the real interest rate are fixed and the rates of money growth and inflation are constant, the inflation rate equals

the growth rate of the nominal money supply

another name for seignorage is

the inflation tax

explain the difference between the overall government budget deficit and the primary deficit

the overall budget deficit equals the primary budget deficit plus net interest payments

why are 3 deficit concepts needed

the overall deficit tells how much the government must borrow currently to pay for its outlays; the primary deficit tells whether current revenues are sufficient to pay for current programs; the primary current deficit tells whether current revenues are sufficient to pay for current programs other than government investment

explain the difference between the primary deficit and the primary current deficit

the primary current budget deficit equals the primary budget deficit minus government investment

all of the following are government capital except: mass transit system roads schools treasury securities

treasury securities

an example of an automatic stabilizer is

unemployment insurance

why do economists suggest that tax rates be kept roughly constant over time, rather than alternating between high and low levels

varying between a high and low tax rate leads to a greater average distortion than keeping the tax rate constant at a medium level

according to the ricardian equivalence proposition, current deficits

will not affect consumption or national saving