Government Budgets and Fiscal Policy
Identify a policy that is most effective when an economy is in a recession.
A cut in personal income taxes
Identify an example of an expansionary fiscal policy
An increase in government spending on final goods and services
Which of the following policies will be helpful in tackling inflation in an economy?
An increase in income tax rates
Which of the following is an example of a contractionary fiscal policy?
An increase in individual income taxes
** Federal Tax Revenue
As a share of GDP, payroll taxes have increased steadily.
______ are tax and spending rules that have the effect of slowing down the rate of decrease in aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation.
Automatic stabilizers
A tax that collects a greater share of income from those with high incomes than from those with lower incomes
Progressive tax
A tax that is a flat percentage of income earned, regardless of level of income
Proportional tax
The gap between the deficit or surplus in the standardized employment budget and the deficit or surplus in the actual budget shows the impact of the ______.
automatic stabilizers
The primary reason behind predictions of enormous budget deficits in the United States in the near future is the ______—the exceptionally high birthrates that began in 1946, right after World War II, and lasted for about two decades.
baby boom
If a government spends as much as it receives in taxes, it is said to have a ______.
balanced budget
When a government receives more money in taxes than it spends in a year, it runs a ______.
budget surplus
Federal spending and borrowing can cause interest rates to rise and business investment to fall. This is referred to as ______.
crowding out
Once a bill is passed by the government of a country regarding a new policy or project, it takes some time for the funds to be dispersed to the appropriate agencies to kick-start the programs. The time to get the projects started is often called the ______ lag.
implementation
The time to get a bill passed is often referred to as the ______ lag.
legislative
The deficit in the standardized employment budget is smaller than the actual budget deficit if the economy is in a ______.
recession
The time it takes to determine that a recession has occurred is often called the ______ lag.
recognition
Each year, the nonpartisan Congressional Budget Office (CBO) calculates the ______ budget—that is, what the budget deficit or surplus would be if the economy were producing at potential GDP.
standardized employment
In the short run, a government that runs a very large budget deficit can shift ______.
the aggregate demand function to the right and trigger severe inflation.
A situation where a government spends more money than it receives in taxes
Budget deficit
Why did national debt decline in the United States during 1998 to 2001?
Defense spending declined during this period.
______ are policies that require the passing of a law that explicitly changes tax or spending levels.
Discretionary fiscal policies
Which of the following accounts for the largest share of state and local government spending?
Education
The total amount that the government has borrowed over time
National debt
A tax in which people with higher incomes pay a smaller share of their income in tax
Regressive tax
Which of the following is true of the debt/GDP ratio in the U.S.?
The debt/GDP ratio in the United States rose from 2002 to 2008
Identify the correct statement. ** Federal Tax Revenue
The income tax is a progressive tax.
Which is the largest single source of federal government revenue in the United States?
The individual income tax
Which of the following taxes provides funds for Social Security and Medicare?
The payroll tax
Identify the correct trend in government spending in the United States.
The share of GDP spent on Social Security has increased over the years
Identify the correct statement regarding federal spending in the United States.
The share of GDP spent on national defense has declined over the years