Chapter 12/13: Aggregate Demand/Supply & Fiscal Policy, Deficits, and Debt

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

What type of tax system would have the most built-in stability

Households, businesses, government, and foreign buyers

Who are the buyers of US real GDP?

economic and non-economic priorities

Fiscal activity addresses..

Macroeconomic Activity

Fiscal policy is a tool that alters _____________ to achieve specific macroeconomic objectives

Inverse

What is the general relationship between a country's price level and the quantity of its domestic output (real GDP) demanded?

a cut in taxes

A person who thinks the public sector is too large, the fiscal options for ending recession would increase...

Price level does not change (much or at all), but real output declines

A reduction in aggregate demand in the relatively flat portion of the aggregate supply curve

Price level increases, but the change in real output is indeterminate

An increase in aggregate demand and a decrease in aggregate supply

Price level rises rapidly, and there is little change in real output

An increase in aggregate demand in the steep portion of the aggregate supply curve

Price level drops, and real output increases

An increase in aggregate supply, with no change in aggregate demand (assume that pries and wages are flexible upward and downward)

False

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

The recession and tax cuts

Budget deficits in 2002 were due to...

Tax revenue and government

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

fiscal stimulus after the financial collapse

Deficits increased substantially in 2008 because of

Price level remains unchanged, and real output rises rapidly

Equal increases in aggregate demand and aggregate supply

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

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

increasing government spending, deceasing taxes, or both

Governments fiscal policy options for moving the economy out of a recession include...

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

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

Government is not engaging in either expansionary or contractionary policy

If the cyclically adjusted budget is balanced, the...

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

If the public investment financed through borrowing complements private investment

Left shift in aggregate demand, left shift in aggregate supply

In the 2 months following 9/11, the United States, consumption also declined.

unemployment and lost wages are multiplied into larger declines in output

Mass layoffs by large companies such as Boeing or General Motors are a concern to the citizens and leaders where those firms are located because

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

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

True

T/F An internally held public debt is like a debt of the left hand owed to the right hand

False

T/F? As a percentage of GDP, the total US public debt held by the public was smaller in 2015 than it was in 2000.

False

T/F? The Federal Reserve and federal government agencies hold more than three-fourths of the public debt

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

The Social Security trust fund

increasing retirement age, subjecting a larger portion of total earnings to the Social Security tax, reducing benefits for wealthy retirees

The broad options for fixing the long-run Social Security problem include

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

The crowding-out effect is the...

All security holders

The federal government owes debt to...

availability and productivity of real resources, not price level

The long-run aggregate supply curve is vertical because the economy's potential output is determined by...

an aging population and declining worker-beneficiary ratio

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

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

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

cut taxes or increase spending

To move the economy to full-employment, government should

owed

Total US debt is the total amount of money ___________ by the federal government.