LC13: LearningCurve - Ch. 13: Fiscal Policy

During an expansion, the budget tends to move toward: Answer choice sa balanced budget. equilibrium. a surplus. a deficit.

a surplus.

Macroland is at full employment and the government repeatedly runs a budget deficit. This _____ if the deficit reduces private investment spending. Answer choices will definitely cause the government to default will not affect economic growth even will definitely result in higher economic growth may result in lower economic growth

may result in lower economic growth

A government budget surplus occurs whenever: Answer choices government revenues exceed government expenditures. the loanable funds macro market equilibrates at a given real rate of interest. the economy is equilibrating at full employment. public sector spending equals private sector spending.

government revenues exceed government expenditures.

As the size of the debt _____, the amount of interest payments that the government must pay _____. Answer choices grows; decreases grows; remains the same decreases; increases grows; increases

grows; increases

People with lower incomes usually have _____ marginal propensities to consume compared to people with higher incomes. Answer choices fluctuating the same higher lower

higher

The government's budget balance tends to _____ during an expansion. Answer choices decrease increase be balanced remain the same

increase

If the MPS is 0.25 and taxes decrease by $100, then real GDP will: Answer choices increase by $400. decrease by $100. decrease by $300. increase by $300.

increase by $300.

If the marginal propensity to consume (MPC) is 0.9 and government transfers increase by $100 billion, real GDP will _____ than $1,000 billion. Answer choices increase by exactly increase by more increase by less decrease by less

increase by less

Suppose that the economy is at equilibrium at $1,000 billion, and potential output is $1,200 billion. If the marginal propensity to consume (MPC) is 0.9, then government spending must increase by $_____ billion to reach potential output. Answer choices10 20 100 200

20

If disposable income is $10 trillion, taxes are $3 trillion, and transfers are $4 trillion, then income is $_____trillion. Answer choices 3 6 7 9

9

The Lilliputian government overestimates the amount of a tax increase needed to close an inflationary gap. Which is MOST likely to occur? Answer choices The economy will come to an equilibrium output that is above the potential output. A recessionary gap will occur. Stagflation will occur. The inflationary gap will get worse.

A recessionary gap will occur.

_____ refer(s) to government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary when the economy expands. Answer choices Expansionary control paradigms A cyclically adjusted budget balance Discretionary fiscal policy Automatic stabilizers

Automatic stabilizers

_____ refer(s) to fiscal policy that is caused by the deliberate actions of policy makers rather than rules. Answer choices Discretionary fiscal policy A cyclically adjusted budget balance Intentional expand/contract controls Automatic stabilizers

Discretionary fiscal policy

Broadly speaking, there are three arguments against the use of expansionary fiscal policy. Which is NOT one of these arguments? Answer choices - Government budget deficits lead to reduced private spending. - Government spending crowds out private spending only when the economy is operating at full employment. - Government borrowing always crowds out private investment spending. - Government spending always crowds out private spending.

Government spending crowds out private spending only when the economy is operating at full employment.

Which country received emergency loans from other European nations and the International Monetary Fund to prevent a government collapse in 2009? Answer choices Norway Australia Portugal Greece

Greece

_____ spending promises made by governments that are effectively a debt despite the fact that they are not included in the usual debt statistics. Answer choices Spending multipliers are Public debts are The cyclically adjusted budget balance refers to Implicit liabilities are

Implicit liabilities are

_____ taxes do NOT depend on the taxpayer's income. Answer choices Lump-sum Regressive Ad valorem Progressive

Lump-sum

The fiscal year 2010 runs from: Answer choices October 1, 2009, through September 30, 2010. October 1, 2010, through September 30, 2011. October 1, 2011, through September 30, 2012 January 1, 2010, through December 31, 2010.

October 1, 2009, through September 30, 2010.

Suppose that the government underestimates the amount of a tax increase needed to close an inflationary gap. Which is MOST likely to occur? Answer choices The economy will come to equilibrium above potential output. The inflationary gap will get worse. Consumption will increase. Stagflation will occur.

The economy will come to equilibrium above potential output.

In the United States, the largest debt-GDP ratio in the last century occurred during: Answer choices World War II. the 1980s. the 1990s. the period from 2000 to 2009.

World War II.

A negative budget balance is: Answer choices a sign that the economy is expanding. a surplus. unrelated to the business cycle. a deficit.

a deficit.

During a recession, the budget tends to move toward: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices a deficit. a surplus. equilibrium. a balanced budget.

a deficit.

The macroeconomic effects of an increase in unemployment benefits will _____ the macroeconomic effects of a decrease in taxes on profits distributed as dividends to shareholders. Answer choices have a minimal effect on real GDP compared to be less than be greater than be the same as

be greater than

If the budget were required to be balanced each fiscal year, then the role of automatic stabilizers would: Answer choices be greatly enhanced. be greatly diminished. not be affected. cease to exist.

be greatly diminished.

President Lyndon Johnson's surcharge on income taxes in 1968 is an example of: Answer choices expansionary fiscal policy. contractionary fiscal policy. a progressive tax. an implicit liability.

contractionary fiscal policy.

The debt-GDP ratio is the government's: Answer choices debt as a percentage of GDP. GDP multiplied times the nation's debt. debt multiplied times the nation's GDP. GDP divided by the nation's debt.

debt as a percentage of GDP.

The U.S. _____ has generally decreased since World War II. Answer choices debt population debt-GDP ratio GDP

debt-GDP ratio

All else equal, a(n) _____ will increase the budget deficit. Answer choices decrease in transfers increase in taxes decrease in government spending decrease in taxes

decrease in taxes

A(n) _____ will shift the aggregate demand curve to the left and decrease real GDP. Answer choices decrease in taxes decrease in transfer payments increase in government spending increase in unemployment insurance benefits

decrease in transfer payments

Contractionary fiscal policy _____ aggregate demand. Answer choices has no effect on decreases has a random effect on increases

decreases

Funding for Social Security and Medicare comes from: Answer choices personal income tax .property taxes. funds collected by state governments. dedicated taxes on wages (payroll taxes).

dedicated taxes on wages (payroll taxes).

If tax revenues are $2 trillion, transfers are $0.5 trillion, and government spending on goods and services is $3 trillion, then the budget balance is a _____ trillion. Answer choices surplus of $0.5 deficit of $0.5 deficit of $1 deficit of $1.5

deficit of $1.5

Taxes and government purchases of goods and services have _____ effects on the budget balance and _____ effects on the economy. Answer choices equal; equal unequal; equal equal; unequal unequal; unequal

equal; unequal

The debt-GDP ratio can _____, even if the level of government debt is rising, provided that GDP grows _____ than the debt. Answer choices fall; more quickly remain stable; more slowly fall; more slowly rise; more quickly

fall; more quickly

In the figure, if the economy is at point C, then expansionary fiscal policy will MOST likely: increase the aggregate price level and decrease output. increase the aggregate price level and increase output. decrease the aggregate price level and increase output. decrease the aggregate price level and decrease output.

increase the aggregate price level and increase output.

The aggregate demand curve will shift to the left if the government: Answer choices institutes an investment tax credit that effectively reduces the cost of investment purchases made by firms. increases its level of defense spending. increases the amount of transfer payments it makes. increases the amount of taxes it collects from households.

increases the amount of taxes it collects from households.

When the unemployment rate rises, the budget deficit almost always: Answer choices increases. is not affected. fluctuates randomly. decreases.

increases.

The budget deficit (as a percentage of GDP) _____ when the economy goes into recession and _____ when the economy expands. Answer choices increases; increases decreases; decreases decreases; increases increases; decreases

increases; decreases

It is _____ for a country to default on its debt. Answer choices impossible not a problem possible, but rare an everyday occurrence

possible, but rare

If the economy is experiencing a(n) _____ gap, then expansionary fiscal policy can close the gap. Answer choices inflationary recessionary positive output zero output

recessionary

An increase in taxes MOST likely will: Answer choices cause a budget deficit to fluctuate wildly. increase a budget deficit. not affect a budget deficit. reduce a budget deficit.

reduce a budget deficit.

Automatic stabilizers _____ the multiplier. Answer choices are positively correlated with reduce the size of increase the size of do not affect

reduce the size of

A decrease in government transfers will cause the aggregate demand schedule to _____, all other things remaining equal. Answer choices shift to the left shift to the right become perfectly horizontal become perfectly vertical

shift to the left

The multiplier is the ratio of: Answer choices the change in tax revenue to government spending. investment to the interest rate. the change in real GDP to the change in autonomous spending. real GDP to autonomous spending.

the change in real GDP to the change in autonomous spending.

A government budget surplus is best justified when: Answer choices the economy is suffering from a severe and prolonged recession. the economy is in equilibrium at an output level greater than the potential level of GDP. the economy is in equilibrium at an output level less than the potential level of GDP. the economy is in equilibrium at the potential level of output.

the economy is in equilibrium at an output level greater than the potential level of GDP.

The government is considering two proposals: one would increase government spending by $100, while the other would decrease the level of taxes collected by the government by $100. If the government's goal is to stimulate the economy in the short run as much as possible for a given level of expenditure, then: Answer choices the government will stimulate the economy more when it increases government spending. the stimulus to the economy from these two proposals is the same; it does not matter which proposal the government implements. neither policy will stimulate the economy. the government will stimulate the economy more when it decreases taxes.

the government will stimulate the economy more when it increases government spending.

A nation's debt-GDP ratio is: Answer choices current GDP in relation to base year GDP × 100. the percentage of government spending divided by government taxes. the government's debt as percentage of that country's GDP. C + I + G + X - IM divided by S.

the government's debt as percentage of that country's GDP.

The main story behind the projections of higher health care spending is: Answer choices the growing number of younger workers in the workforce in the United States. the long-run tendency of health care spending to rise faster than overall spending. the likelihood that the U.S. government will default on its loans. the likelihood of new government health care programs to emerge.

the long-run tendency of health care spending to rise faster than overall spending.

Many economists caution that: Answer choices there are time lags in the use of fiscal policy, and that fiscal policy must be carefully employed if it is to result in less, rather than more, economic fluctuation. the existence of time lags makes the implementation of fiscal policy easier than it would be without the lags. recessionary gaps are often over before fiscal policy has any impact, so the fiscal policy has no impact on the economy. recessionary gaps are so threatening that the government ought to be always ready to enact fiscal policy to counteract them.

there are time lags in the use of fiscal policy, and that fiscal policy must be carefully employed if it is to result in less, rather than more, economic fluctuation.

_____ acts like automatic expansionary fiscal policy when the economy is in a recession. Answer choices An automatic stabilizer The cyclically adjusted budget balance Discretionary fiscal policy A lump-sum tax

An automatic stabilizer

_____ is not included in the usual debt statistics in the United States. Answer choices Public debt A social insurance fallacy The multiplier An implicit liability

An implicit liability

A government overestimates the amount of government spending needed to close a recessionary gap. Which is MOST likely to occur? Answer choices An inflationary gap will occur. The recessionary gap will become worse. Stagflation will occur. The economy will come to equilibrium below potential output.

An inflationary gap will occur.

_____ defaulted on its debt in 2001. Answer choices Greece Spain The United States Argentina

Argentina

Suppose that the government overestimates the reduction in the amount of government spending needed to close an inflationary gap. Which is MOST likely to occur? Answer choices An inflationary gap will occur. Stagflation will occur. The inflationary gap will get worse. The economy will come to equilibrium below potential output.

The economy will come to equilibrium below potential output.

A positive budget balance is: Answer choices a deficit. a surplus. unrelated to the business cycle. a sign that the economy is contracting.

a surplus.

A debt spiral is more likely for countries: Answer choices that adopt mixed capitalist economic systems and decentralized democratic governments. that are located in the northern hemisphere. incurring budget deficits during recessions and budget surplus during expansions. incurring repeated, sizable deficits that add so much to debt relative to GDP that it becomes difficult for the government to fund basic services.

incurring repeated, sizable deficits that add so much to debt relative to GDP that it becomes difficult for the government to fund basic services.

People with higher incomes usually have _____ marginal propensities to consume compared to people with lower incomes. Answer choices lower fluctuating the same higher

lower