Ch 13

As a percentage of GDP, the total US public debt is the highest such debt among the world's advanced nations

False

The Federal Reserve and federal government agencies hold more than 3/4 of the public debt

False

As a percentage of GDP, the total US public debt help by the public was larger in 2010 than it was in 1990

True

Deficits increased substantially in 2008 because of

fiscal stimulus after the financial collapse

The cyclically adjusted budget measures what the federal deficit or surplus would be if the economy reached the ____ level of GDP

full- employment

Refinancing of the public debt might drive up real interest rates because

government borrowing to finance the debt increases demand for funds and competes with private borrowing

Social Security is a 'pay as you go' plan. This means that

most of the current revenues from the SS tax are paid to current SS retirees

What type of tax system would have the most built in security?

A progressive tax system because it increases at an increasing rate as incomes rise, thus having more of a dampening effect on rising (or falling) incomes

An internally help public debt is like a debt of the left hand owed to the right hand

True

For a person who thinks the public sector is too large, the fiscal options for ending recession would include

a cut in taxes

The long-run fiscal imbalance in the SS retirement system is the result of

an aging population and declining worker-beneficiary ratio

For a person who wants to preserve the size of government, the fiscal options for ending a recession include

an increase in government spending

Expectations of a near-term policy reversal weaken fiscal policy because

consumers may hesitate their spending because they believe that tax rates will rise again.

If the cyclically adjusted budget is balanced, the

government is not engaging in either expansionary or contractionary policy

Refinancing of the public debt might cause

higher interest rates that can lower investment and economic growth

The problem of time lags in enacting and applying fiscal policy is that

in the time it takes to identify the situation, enact a policy, and allow it to work, economic circumstances may have changed

The SS trust fund

includes assets held by these programs to help pay for future projected tax revenue shortfalls

The government's fiscal policy options for moving the economy out of a recession include

increasing government spending, decreasing taxes, or both

Fiscal policy is a tool that alters _____ to achieve specific macroeconomic objectives, and fiscal activity addresses _____

macroeconomic activity; economic and non- economic priorities

The ratchet effect makes anti-inflationary policy

more difficult

A political business cycle happens because

politicians are more interested in reelection than in stabilizing the economy

If the public investment financed through borrowing complements private investment

private borrowers may be willing to pay higher interest rates associated with financing the public debt

The crowding-out effect is the

reduction in investment spending caused by the increase in interest rates, arising from an increase in government spending

Built-in, or automatic, stabilizers work by changing _____ so that GDP changes are reduced

tax revenue and government payouts

If the annual interest payments on the debt sharply increased as a percentage of the GDP

the government would have to use more tax revenues for interest or go deeper into debt

Budget deficits in 2002 were due to

the recession and tax cuts