Macroeconomics- Government Budget and Fiscal Policy

balanced budget

A ___ means that government spending and taxes are equal

progressive tax

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

A ____ is calculated as a flat percentage of income earned, regardless of level of income

budget deficit

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

increase AD

A combination of an increase in government purchases and a decrease in taxes would

aggregate demand, real output, the price levels employment

A policy which increased the federal government deficit would tend to increase which of the following in the short tun, other things being equal

contractionary

A typical ___ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes

the government budget deficit increases because government purchase rose, the government budget deficit increases because taxes fell, the government budget deficit increases because transfer payments rose

AD will shift to the right, other things being equal, when

the demand for loanable funds will increase, driving interest rates up

According to the crowing-out effect, if the federal government borrows to finance deficit spending,

decrease AD

An increase in taxes combined with a decrease in government purchases would

government spending exceeds its tax revenue

Budget deficits are created when

in accumulated government debt

By June, 2010, the US government owed $13.6 trillion dollars ____ that, over time, has remained unpaid

decrease government spending and increased taxes

Contractionary fiscal policy consists of

increase, falls

During a recession, government transfer payments automatically ____ and tax revenue automatically ____

aggregate demand curve will shift to the right

During a recession, if a government uses an expansionary fiscal policy to increase GDP, the:

reduce investment

Higher budget deficits would tend to

It issues debt to government agencies, private institutions, and private investors

How does the government finance budget deficits?

increase

If a country's GDP decreases, but its debt increases during that year, then the country's debt to GDP ratio for the year will _____ in proportion to the magnitude of the changes

expansionary

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

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

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

increase government purchases

If government policymakers were worried about the inflationary potential of the economy, which of the following would not be correct fiscal policy change?

regressive

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

decrease taxes, increase government purchases of goods and services, increase transfer payments

If the government wanted to move the economy out of a current recession, which of the following might be an appropriate policy action?

decrease taxes or increase taxes

If the government wanted to offset the effect of a boom in consumer and investor confidence on AD, it might

3

If the marginal propensity to consume is 2/3, the multiplier is

decreased taxes and increased government purchases

In order for the economy pictured here to return to RGDPNR, this economy could use

in combination with a rise in the price level

In the short run, expansionary fiscal policy can cause a rise in real GDP

fiscal policy is based on forecasts, which are not foolproof, a lag occurs between a change in fiscal policy and its effect, how much of the multiplier effect will take place in a given amount of time is uncertain

One of the real-world complexities of countercyclical fiscal policy is that

increase $30 billion, not change

Starting at full employment, if MPS= 2/3, and increase in government purchases of $10 billion would lead AD to ____ and ___ real output in the long run

1/(1-MPC)

The expenditure multiplier is

Aggregate demand will increase $50 million

The federal government buys $20 million worth of computers from Dell. If the MPC is 0.60, what will be the impact on aggregate demand, other things being equal

an expansionary fiscal policy, an increase in government spending

The government can use ___ in the form of ____ to increase the level of aggregate demand in the economy

2

What would the multiplier be if the marginal propensity to consume was 1/2

1.5

What would the multiplier be if the marginal propensity to consume was 1/3

4

What would the multiplier be if the marginal propensity to consume was 3/4

use contractionary fiscal policy to shift aggregate demand to the left

When inflation begins to climb to unacceptable levels in the economy, the government should:

decreases, decreases

When taxes are increased, disposable income ____, and hence consumption ________

discretionary fiscal policy

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

regressive

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 income, then the tax is ________