Macroeconomics CH 13 Reading
True or false: The up-sloping aggregate supply curve means that leftward shifts of AD result only in demand-pull inflation rather than increased output.
False; Demand-pull inflation results from rightward or upward shifts of the aggregate demand curve.
__________ fiscal policy is used in response to recession.
Expansionary
What type of fiscal policy was enacted in the form of the Economic Stimulus Act of 2008?
Expansionary fiscal policy
True or false: Governments rarely have significant problems in enacting and applying fiscal policy.
False
If investment demand is fixed and the interest rate rises from 6 to 10 percent as a result of servicing the public debt, what happens to private investment?
It declines
To whom does the United States owe the greatest portion of the public debt?
Itself
Fiscal policies of state and local government frequently worsen rather than correct recession or inflation. This is described as what?
Pro-cyclical
The average tax rate rises with GDP in what kind of tax system?
Progressive
Which of the following best describes the public debt of most industrialized nations?
Sometimes large
How would an economist describe concerns related to income distribution and foreign-owned public debt?
Substantive
A budget deficit is government spending in excess of what?
Tax revenues
As GDP rises during prosperity, what happens to tax revenues?
Tax revenues increase automatically.
Which of the following reduces household and business spending?
Taxes that restrain economic expansion
Which of the following is an example of a built-in stabilizer?
The U.S tax system
Which of the following is a potential flaw of fiscal policy?
The crowding-out effect
What happens to the price level when aggregate demand (AD) declines?
The price level remains the same.
Discretionary __________ policy consists of deliberate changes in government spending and taxation designed to achieve full employment, control inflation, and encourage economic growth.
fiscal
The crowding-out effect is a potential flaw or result of expansionary ______ policy.
fiscal
The federal government's purposeful manipulation of taxes and spending in order to "stimulate the economy" or "rein in inflation" is known as ______ policy.
fiscal
The manipulation of taxes and federal spending in order to stimulate the economy or reduce inflation is known as expansionary or contractionary ________ policy.
fiscal
The recognition, administrative, and operational lags are some of the problems faced by the government related to _______ policy.
fiscal
The _________ process magnifies the initial change in spending into successive rounds of new consumption spending.
multiplier
Further tax ________ were passed in 2002 totaling $122 billion over two years.
cuts
Which of the following are fiscal tools that a government may use to eliminate an inflationary GDP gap?
- Decrease government spending - A combination of both reduced government spending and higher taxes - Raise taxes
Economists recognize that governments may encounter a number of significant problems in doing what?
- Enacting fiscal policy - Applying fiscal policy
Discretionary fiscal policy consists of deliberate changes in government spending and taxation designed to do which of the following?
- Encourage economic growth - Achieve full employment - Control inflation
According to economists, which of the following are substantive and valid concerns related to the U.S. public debt?
- Foreign-owned public debt - Income distribution - Crowding out - Incentives
Which of the following tools of fiscal policy are used to positively stimulate an economy?
- Increased government spending - Tax reductions
Which of the following are lag problems faced by the government related to fiscal policy?
- Recognition - Operational - Administrative
Historically, which of the following are reasons that a large U.S. public debt might not threaten to bankrupt the federal government?
- Refinancing - Taxation
In 2018 payments on the federal debt amounted to what percentage of GDP?
1.8%
Anything that increases the government's budget deficit (or reduces its budget surplus) during a recession and increases its budget surplus (or reduces its budget deficit) during an expansion without requiring explicit action by policymakers is called what?
A built-in stabilizer
______ thought to be temporary may not increase present consumption spending and aggregate demand as much as expected because people are preparing for a higher tax rate in the future.
A tax cut
Why would a tax reduction thought to be temporary not increase present consumption spending and aggregate demand as much as expected?
Because people are preparing for the expected higher tax rate in the future
Other things equal, an increase in government spending will have what effect on an economy's aggregate demand curve?
Cause it to shift out rightward
The multiplier process magnifies the initial change in spending through successive rounds of what?
Consumption spending
When demand-pull inflation occurs, what kind of fiscal policy may help control it?
Contractionary
What is another term for restrictive fiscal policy?
Contractionary fiscal policy
A declining ________ leads to a tax receipt decline and moves the government's budget from surplus toward deficit.
GDP
Tax revenues automatically rise and the budget moves from deficit toward surplus as the economy moves toward a higher ______.
GDP
Increasing which of these will cause an increase in aggregate demand?
Government spending
______ due to the public debt is undesirable if greater income equality is one of society's goals.
Income redistribution Reason: In general, ownership of the public debt is concentrated among the wealthy. However, interest payments on the public debt is paid by all taxpayers including those who own very little or none of the public debt in the form of government securities or bonds. Therefore, income is redistributed from low-income to higher-income bond-holders.
_________ payments on the federal debt were 1.8% of GDP in 2018.
Interest
Expansionary fiscal policy is used in response to the economy being in what state?
Recession
With a large interest payment to service public debt, higher taxes may be required. What may be the result of higher taxes?
Reduced incentive to take risk, innovate, invest, and work
How do cyclically adjusted budget deficits compare in size to actual budget deficits?
They are smaller.
Why were tax cuts totaling $122 billion over two years passed in 2002?
To further boost the economy and offset the recession
True or false: It is common for countries to have public debts.
True
True or false: The United States owes a substantial portion of the public debt to itself.
True
True or false: The price level can remain stuck at its old level even when aggregate demand declines.
True
When tax revenues exceed government spending, it is called ______.
a budget surplus
Restrictive fiscal policy is also known as ___ fiscal policy.
contractionary
When demand-pull inflation occurs, a(n) ____________ fiscal policy may help control it.
contractionary
If the economy starts out with a balanced federal budget, a subsequent expansionary fiscal policy will create a ______.
budget deficit
Payments of public ____ to foreigners allows foreigners to buy some U.S. output.
debt
If the economy starts out with a balanced federal budget, a subsequent expansionary fiscal policy will create a budget ________.
deficit
The U.S. public debt is essentially the accumulation of all past federal _______ and ________.
deficits; surpluses
A decrease in aggregate ______ causes real GDP to decline.
demand
Policy changes that occur without congressional action are known as ______________, passive, or automatic.
discretionary
If greater income ________ is one of society's goals, then redistribution of income resulting from the public debt is undesirable.
equaltiy
The discretionary fiscal policy used to stimulate the economy is called ____________ fiscal policy.
expansionary
U.S. public debt held by foreigners is also known as ______ public debt.
external
An economy's potential output is also known as ______.
full-employment output
The multiplier effect causes the aggregate demand curve to shift by an amount ________ than an initial change in government spending.
greater
One way to increase aggregate demand is to _______ government spending.
increase
When Congress passed the stimulus package in 2008, it caused the size of the cyclically adjusted budget deficit to ________.
increase
With a large interest payment to service public debt, higher taxes may be required. Higher taxes may dampen incentives to bear risk, to innovate, to invest, and to work. These incentive reductions may ______.
indirectly impair economic growth
The up-sloping aggregate supply curve means that rightward shifts of aggregate demand result more in demand-pull _______ than in increased output.
inflation
The government may reduce government spending or increase taxes in order to eliminate a(n) ______.
inflationary GDP gap
Elected officials sometimes cause ______ business cycles in their attempts, through fiscal policy actions, to increase their chances of reelection.
political
Elected officials sometimes cause ________ business cycles in their attempts, through fiscal policy actions, to increase their chances of reelection.
political
An economy's ________ output is also known as full-employment output.
potential
In a(n) _______ tax system, the average tax rate rises with GDP.
progressive
The U.S. _____ debt is the total accumulation of the deficits (minus the surpluses) the federal government has incurred over time.
public
The total amount of money owed by the United States Treasury to holders of U.S. securities is the total ______.
public debt
A decrease in aggregate demand will cause a decrease in ______.
real GDP
An economy producing below potential output is considered to be operating in a(n) ______ gap.
recessionary
Other things equal, an increase in government spending will shift an economy's aggregate demand curve to the _____.
right
Tax revenues automatically ____ as GDP rises during prosperity.
rise
Tax revenues automatically _______ and the budget moves from deficit toward surplus as the economy moves toward a higher GDP.
rise
To positively stimulate an economy using fiscal policy, government spending should ______, and taxes should ______.
rise; fall
The total public debt represents the total amount of money owed by the federal government to holders of U.S. government __________.
securities
Cyclically adjusted budget deficits are generally ____________ than the actual budget deficits because actual budget deficits include cyclical deficits and cyclically adjusted budget deficits do not.
smaller
When an economy's output is _______ than its potential output, the gap is known as a recessionary gap.
smaller
A built-in __________ is anything that increases the government's budget deficit (or reduces its budget surplus) during a recession and increases its budget surplus (or reduces its budget deficit) during an expansion without requiring explicit action by policymakers.
stabilizer
Expansionary fiscal policy is used in order to ______ the economy.
stimulate
When the economy faces demand-pull inflation, fiscal policy should move toward a government budget ______.
surplus
A falling GDP leads to a tax receipt decline and moves the government's budget from ______ to ______.
surplus; deficit
The large U.S. public debt does not threaten to bankrupt the federal government for two main reasons: refinancing and _______.
taxation
The aggregate demand curve shifts by an amount greater than an initial change in government spending. This is caused by ______.
the multiplier effect
The built-in stability of an economy depends on ______.
the responsiveness of tax revenues to changes in GDP
Fiscal policies of state and local government are frequently pro-cyclical in that they ______ the economy.
worsen