Chapter 16 Macroeconomics

The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. In the figure above, potential GDP is $10 trillion and real GDP is $_____ trillion, so there is a $1 trillion _____ gap

$9 trillion; recessionary

The law-making time lag is best described as the time that it takes

Congress to pass laws needed to change taxes or spending

An increase in income taxes ________ employment and ________ potential GDP

Decreases; decreases

When government outlays exceed tax receipts, the situation is called a budget

Deficit

There are four limitations to the effectiveness of discretionary fiscal policy. Which item below is NOT one of these limitations

Fiscal multiplier

The supply-side effects of an income tax cut ________ potential GDP and ________ aggregate supply

Increase; increase

Needs-tested spending ________ during recessions and ________ during expansions

Increases; decreases

An income tax cut ________ aggregate demand and ________ aggregate supply

Increases; increases

Taxes that vary with real GDP are called

Induced taxes

When the government's outlays equal its tax revenue, the budget

Is balanced and the national debt is not changing

The structural surplus

Is the government budget surplus that would occur if the economy was at full employment

The national debt is the amount

Of debt outstanding that arises from past budget deficits

The magnitude of the tax multiplier is ________ the magnitude of the government expenditure multiplier

Smaller than

Social Security benefits and expenditures on Medicare and Medicaid are classified as

Transfer payments

Discretionary fiscal policy is a fiscal policy action, such as

A tax cut, initiated by an act of Congress

The federal budget is defined as

An annual statement of tax revenues, outlays, and surplus or deficit of the U.S. government

During a recession, unemployment benefit payments increase without the need for any government action. This increase is an example of

Automatic fiscal policy

The use of the federal budget to achieve macroeconomic objectives of high and sustained economic growth and full employment is

Called fiscal policy

The standard view in economics is that tax cuts without ________ will ________ the budget deficit bring ________

Spending cuts; increase; a crowding-out effect

Automatic changes in tax revenues and expenditures that occur as a result of fluctuations in real GDP are referred to as automatic

Stabilizers

The actual budget deficit is equal to the

Structural deficit plus the cyclical deficit

The government has a budget surplus if

Tax revenues are greater than outlays

In the labor market, the difference between the before-tax wage rate and after-tax wage rate is referred to as the

Tax wedge

What two parts of the government that determine the federal budget?

The President and the Congress