Macroeconomics- Exam 6

The group of three economists who provide fiscal policy recommendations to the president is the

Council of Economic Advisors

An appropriate fiscal policy for a severe recession is

Increase

When current government expenditures exceed current tax revenues and the economy is achieving full employment, the cyclically adjusted budget has a _____________.

deficit

The U.S. public debt consists of the historical accumulation of all past federal ___________ and _______________.

deficits and surpluses

A budget surplus means that

government revenues are greater than expenditures in a given year

Recessions have contributed to the public debt by reducing national ___________ and therefore _____ revenues.

income, tax

The public debt is the amount of money that

the federal government owes to holders of US securities.

When the economy is at full employment,

the natural rate of unemployment prevailsthe unemployment rate is greater than zeroall remaining unemployment is either frictional or structural

An economy is experiencing a high rate of inflation. The government wants to reduce consumption by $36 billion to reduce inflationary pressure. The MPC is 0.75. By how much should the government raise taxes to achieve its objective?

$12 billion

In 2018, the U.S. public debt was about

$16.1 trillion

The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. If year 1 is the first year of this nation's existence and year 6 is the present year, this nation's public debt is

$275 billion

In 2017, the public debt in the U.S. on a per capita basis was about

$62,000

In 2018, interest payments on the public debt, as a percentage of GDP, were about_____ percent.

1.8%

In 2018, foreign ownership of the total public debt of the United States was about

28%? 39?

Refer to the diagram, in which Qf is the full-employment output. Contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at AD _.

AD 3

Which of the following is not considered a legitimate concern of a large public debt?

Bankruptcy of the federal government

How is the public debt calculated?

By cumulating the annual difference between tax revenue and government deficit over the years.

A federal budget deficit is financed by the government ___________ or ___________ of Treasury securities

Issuance or sale

When changes in taxes and government spending occur in the economy without explicit action by Congress, such policy is called ________ fiscal policy

Non discretionary

Refer to the accompanying graph. What combination would most likely cause a shift from AD 1 to AD 3?

Refer to the accompanying graph. What combination would most likely cause a shift from AD 1 to AD 3?

Refer to the figure. The economy is at equilibrium at point C, which is below potential output . What fiscal policy would increase real GDP?

Shift aggregate demand by increasing transfer payments

Which of the following fiscal policy changes would be the most contractionary?

a $10 billion increase in taxes and a $30 billion cut in government spending

Contractionary fiscal policy is so named because it is _____________ at reducing aggregate __________ and thus achieving price stability.

aimed, demand

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. This diagram portrays the idea of

built-in stability

"A $10 billion increase in taxes and a $30 billion cut in government spending" is example of _____________ fiscal policy changes.

contractionary

When the Federal government cuts taxes and increases spending to stimulate the economy during a period of recession, such actions are design to be

countercyclical

The actual budget deficit of the federal government in 2018 was about $3.9 percent of GDP. On the basis of this information, it cannot be determined whether the government engaged in _______________ or ___________________ fiscal policy in 2018.

expansionary or contractionary

An effective expansionary fiscal policy will _____________ the cyclically adjusted deficit but reduce the actual ___________.

increase, deficit

The crowding-out effect of expansionary fiscal policy suggests that

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment

Discretionary fiscal policy refers to

intentional changes in taxes and government expenditures made by Congress to stabilize the economy

Expansionary fiscal policy is so named because it

is designed to expand real GDP

A tax reduction of a specific amount will be more expansionary the

larger the economy's MPC

The effect of contractionary fiscal policy is shown as a

leftward shift in the economy's aggregate demand curve

The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the

legislative lag

Suppose the government cuts taxes to keep the economy's cyclically adjusted budget in balance when the economy is expanding. The government is engaging in a(n)

neutral fiscal policy

In Year 1, the actual budget deficit was $150 billion and the cyclically adjusted deficit was $125 billion. In Year 2, the actual budget deficit was $130 billion and the cyclically adjusted deficit was $125 billion. It can be concluded that from Year 1 to Year 2,

real GDP increased

A major reason that the public debt cannot bankrupt the federal government is because the public debt can be easily ___________ by issuing new bonds.

refinanced

The effect of expansionary fiscal policy is shown as a __________ shift in the economy's aggregate demand curve.

rightward

Fiscal policy is enacted through changes in

taxation and government spending.

To say that "the U.S. public debt is mostly held internally" is to say that

the bulk of the public debt is owned by U.S. citizens and institutions.