econ ch17 questions

To close an inflationary gap with fiscal policy, the government could:

reduce budget allocations to interstate highway maintenance

Medicaid, Medicare, and Social Security are examples of:

transfer payments

When faced with a recessionary gap, the government can increase taxes and cut spending to close it.

False

The fact that tax receipts fall during a recession:

reduces the adverse effect of the initial fall in aggregate demand

When the economy expands, income tax receipts will:

rise, and sales tax revenues will rise

The national debt _____ when the federal government incurs a _____.

rises; deficit

A recessionary gap can be closed with:

expansionary fiscal policy

The government has a budget surplus if _____ expenditures.

if revenues are greater than

Which of the following is NOT an example of government transfers?

a reimbursement of personal income tax withheld from wages

A government surplus is contractionary because ______ are contractionary.

increases in taxation

Expansionary fiscal policy includes:

increasing government expenditures

Contractionary fiscal policy includes:

increasing taxes

If the economy is at equilibrium above potential output, there is a(n) ______ gap, and ______ fiscal policy is appropriate.

inflationary; contractionary

The largest source of federal tax revenues is:

personal income taxes

When the government borrows funds to pay for budget deficits:

private investment spending may be crowded out

An inflationary gap occurs when:

actual output exceeds potential output

In the basic equation of national income accounting, GDP = C + I + G + x -IM, the government directly controls _____ and influences ______ through fiscal policy

G; C and I

Medicaid, food stamps, and sales taxes are all automatic stabilizers.

True

One of the lags associated with fiscal policy is the time it takes to recognize that the economy has developed a recessionary or inflationary gap.

True

What can the federal government do to finance a deficit?

borrow funds

Suppose the government increases spending to fund tuition assistance for qualified college students. Automatic stabilizers will ______ the ______ effect of the ______ in aggregate demand.

decrease; expansionary; increase

When the economy is in a recession, tax receipts ______ and unemployment insurance payments ______.

decrease; increase

The national debt:

grows when the government runs a deficit

Spending promises made by the government that are effectively a debt, although they are not included in the usual debt statistics, are known as:

implicit liabilities

If the average retirement age decreases:

implicit liabilities will increase.

Social Security spending is projected to:

increase as baby boomers retire

If the government's revenues are greater than its expenditures, then it has a budget:

surplus

Fiscal policy that decreases aggregate demand is:

contractionary

Taxes increase as GDP rises. This is an example of automatic stabilizer.

True

A change in government transfers shifts the aggregate demand curve by more than a change in government spending for goods and services and has a larger effect on real GDP.

False

Medicare covers much of the cost of medical care for Americans with low incomes.

False

The budget deficit usually decreases when the unemployment rate increases.

False

Which of the following is a government transfer?

Social Security payments to retired auto workers

The multiplier effect of an increase transfer payments is smaller than that of an equal increase in government purchases of goods and services because some of the transfer payment is likely to be saved.

True

The size of the multiplier increases as the size of the marginal propensity to consume increases.

True

Government transfer payments rise when the economy is contracting and fall when the economy is expanding. In this role, transfer payments are described as:

automatic stabilizers

Changes in taxes and government transfers shift the aggregate demand curve ______ government purchases.

by less than

Some argue that budget deficits will lead to reduced private spending because:

consumers, anticipating higher taxes, will reduce consumption to save money to pay the future taxes

If the marginal propensity to consume is 0.75 and government purchases of goods and services decrease by $30 billion, real GDP will:

decrease by $120 billion

If the current equilibrium output lies above potential output, then an appropriate fiscal policy would be to _____, which will shift the AD curve to the _____.

decrease government purchases; left

A contractionary fiscal policy either ______ government spending or ______ taxes.

decreases; increases

The federal budget tends to move toward _____ as the economy _____.

deficits; contracts

The effect of a government deficit is:

expansionary

The decision to build more aircraft carriers to keep employment high is an example of:

expansionary fiscal policy

If the actual output lies below potential output, then an appropriate fiscal policy would be to ______, which will shift the ______ curve to the ______.

increase government purchases; AD; right

Budget deficits almost always:

increase when unemployment increases and fall when unemployment falls.

Expansionary fiscal policy:

increases aggregate demand

All of the following are sources of federal tax revenue EXCEPT:

sales tax

When the unemployment rate decreases, the budget:

surplus gets larger or the deficit gets smaller.

An example of an automatic stabilizer is:

tax receipts rising when GDP rises.

Government's efforts to stabilize the business cycle through fiscal policy can destabilize the economy because of:

the time necessary to draw up a budget appropriate to the circumstances

Discretionary fiscal policy entails:

using government spending or tax policy to affect aggregate demand