Macro Ch. 13 HW
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 - Increased incentive to take risk, innovate, invest, and work - Reduced incentive to pay down the debt - Increased incentive to hire additional employees
- Reduced incentive to take risk, innovate, invest, and work
In 2018 payments on the federal debt amounted to what percentage of GDP? 38% 1.8% 28% 18%
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? Government spending A built-in stabilizer Corporate taxes Discretionary policy
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 rise in output A decrease in income A tax cut A decrease in interest rates An increase in interest rates
A tax cut
Which of the following are lag problems faced by the government related to fiscal policy? Operational Investment Consumption Administrative Recognition
Administrative Recognition Operational
Economists recognize that governments may encounter a number of significant problems in doing what? Applying fiscal policy Enacting fiscal policy Reviewing fiscal policy Defining fiscal policy
Applying fiscal policy Enacting fiscal policy
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 - Because a change in taxation would influence investment, not consumption spending - Because people might be anticipating deeper tax cuts in the future - Because tax changes do not change consumption spending and aggregate demand
Because people are preparing for the expected higher tax rate in the future
According to economists, which of the following are substantive and valid concerns related to the U.S. public debt? Burdening future generations Crowding out Incentives Income distribution Bankruptcy Foreign-owned public debt
Crowding out Incentives Income distribution Foreign-owned public debt
What term describes the idea that public borrowing drives up real interest rates, thereby reducing private investment spending? Income distribution Crowding-out effect Economic incentives External public debt
Crowding-out effect
What do economists use to estimate the annual deficit or surplus that would occur under existing tax rates and government spending levels if the economy were to operate at full employment? Built-in stabilizer Progressive tax system Cyclically adjusted budget Expansionary fiscal policy
Cyclically adjusted budget
Discretionary fiscal policy consists of deliberate changes in government spending and taxation designed to do which of the following? Control inflation Adjust the money supply Manage the interest rate Encourage economic growth Achieve full employment
Encourage economic growth Achieve full employment Control inflation
One must adjust deficits and surpluses to eliminate automatic changes in tax revenues in order to do what? Evaluate the status of monetary policy. Evaluate the status of current consumption. Evaluate the status of fiscal policy. Evaluate the status of the economy.
Evaluate the status of fiscal policy.
What type of fiscal policy was enacted in the form of the Economic Stimulus Act of 2008? Neutral fiscal policy Expansionary fiscal policy Contractionary fiscal policy
Expansionary fiscal policy
True or false: Governments rarely have significant problems in enacting and applying fiscal policy. True False
False
______ due to the public debt is undesirable if greater income equality is one of society's goals. Income redistribution Fiscal or monetary policy Recession Taxation
Income redistribution
Which of the following tools of fiscal policy are used to positively stimulate an economy? Increased government spending Tax reductions Decreased government spending Tax increases
Increased government spending Tax reductions
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 is eliminated. It stays the same. It increases. It declines.
It declines.
To whom does the United States owe the greatest portion of the public debt? China Germany Canada Japan Itself
Itself
Policy changes that occur without congressional action are known as _____________ , passive, or automatic.
Nondiscretionary
Which of the following are used to describe policy changes that occur without congressional action? Discretionary Nondiscretionary Automatic Passive Active
Nondiscretionary Automatic Passive
Fiscal policies of state and local government frequently worsen rather than correct recession or inflation. This is described as what? Pro-cyclical Countercyclical Automatically cyclical Supportive of the business cycle
Pro-cyclical
Expansionary fiscal policy is used in response to the economy being in what state? Low unemployment High inflation Recession Expansion Past full employment
Recession
Historically, which of the following are reasons that a large U.S. public debt might not threaten to bankrupt the federal government? Income distribution Low interest rates Refinancing Taxation
Refinancing Taxation
Which of the following best describes the public debt of most industrialized nations? Rarely large Almost always small Almost always large Sometimes large
Sometimes large
How would an economist describe concerns related to income distribution and foreign-owned public debt? False Unprovable Substantive Irrelevant
Substantive
Which of the following is a potential flaw of fiscal policy? The crowding-out effect The multiplier effect The consumption effect The government spending effect
The crowding-out effect
What happens to the price level when aggregate demand (AD) declines? The price level decreases. The price level increases. There is not enough information. The price level remains the same.
The price level remains the same.
How do cyclically adjusted budget deficits compare in size to actual budget deficits? They are the same size. They are larger. They are smaller. They are unrelated.
They are smaller.
Why were tax cuts totaling $122 billion over two years passed in 2002? - To respond to runaway inflation - To further boost the economy and offset the recession - To correct the failed economic policies of 2001 - To expand the bubble in tech stocks of 2000
To further boost the economy and offset the recession
True or false: It is common for countries to have public debts. True False
True
True or false: The United States owes a substantial portion of the public debt to itself. True False
True
Further tax ____________ were passed in 2002 totaling $122 billion over two years.
cuts
Payments of public ______________ to foreigners allows foreigners to buy some U.S. output.
debt
The U.S. public debt is essentially the accumulation of all past federal ____________ and _______________ . (Enter one word per blank.)
deficit and surplus
A decrease in aggregate ___________ causes real GDP to decline.
demand
If greater income _____________ is one of society's goals, then redistribution of income resulting from the public debt is undesirable.
equality
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. gross internal external net
external
Discretionary _________ (one word) 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. taxation fiscal monetary governmental
fiscal
The manipulation of taxes and federal spending in order to stimulate the economy or reduce inflation is known as expansionary or contractionary ____________ (one word) policy.
fiscal
The recognition, administrative, and operational lags are some of the problems faced by the government related to _______________ policy.
fiscal
Economists use the cyclically adjusted budget to estimate the annual budget deficit or surplus that would occur under existing tax rates and government spending levels if the economy were to operate at _________ employment.
full
An economy's potential output is also known as ______. business-employment output maximized-employment output fiscal-employment output full-employment output
full-employment output
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 decrease the interest rate decrease foreign-owned public debt place an unfair burden on future generations
indirectly impair economic growth
____________ payments on the federal debt were 1.8% of GDP in 2018.
interest
When an economy's output is ___________ than its potential output, the gap is known as a recessionary gap.
less
When an economy's output is _____________ than its potential output, the gap is known as a recessionary gap.
lower
Elected officials sometimes cause ______ business cycles in their attempts, through fiscal policy actions, to increase their chances of reelection. longer political administrative standard
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. (Enter one word in the blank.)
potential
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 ______. budget surplus privately held debt public debt GDP
public debt
A decrease in aggregate demand will cause a decrease in _________. the money supply real GDP government inflation
real GDP
Expansionary fiscal policy is used in response to the economy being in what state? Past full employment Recession Low unemployment High inflation Expansion
recession
An economy producing below potential output is considered to be operating in a(n) ______ gap. expansionary recessionary concessionary inflationary
recessionary
An economy producing below potential output is considered to be operating in a(n) ______ gap. recessionary inflationary expansionary concessionary
recessionary
When Congress passed the stimulus package in 2008, it caused the size of the cyclically adjusted budget deficit to _____________.
rise
To positively stimulate an economy using fiscal policy, government spending should ______, and taxes should ______. fall; rise rise; rise fall; fall rise; fall
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
A built-in _____________ (one word) 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. reduce GDP in increase interest rates in reduce inflation in stimulate increase unemployment in
stimulate
Expansionary fiscal policy is used in order to ______ the economy. reduce inflation in increase unemployment in stimulate increase interest rates in reduce GDP in
stimulate
Evaluating the status of fiscal policy requires adjusting deficits and surpluses to eliminate automatic changes in ______________ revenues.
tax
The large U.S. public debt does not threaten to bankrupt the federal government for two main reasons: refinancing and ___________.
taxes
True or false: The price level can remain stuck at its old level even when aggregate demand declines. True False
true
Fiscal policies of state and local government are frequently pro-cyclical in that they ______ the economy. improve cause no changes in worsen correct
worsen
