ECO 210 Ch 13

The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the table. Assume that Year 1 is the first year for this economy and Year 5 is the current year. What is the public debt in this economy at Year 5? Government Spending Tax Revenues GDP Year 1 $800 $825 $4,000 Year 2 $850 $850 $4,200 Year 3 $900 $875 $4,350 Year 4 $950 $900 $4,500 Year 5 $1,000 $925 $4,600

$125 billion

Most economists believe that fiscal policy is: Question options: A) Not very good at pushing the economy in a particular direction B) Better than monetary policy for month-to-month stabilization C) Not as good as monetary policy for month-to-month stabilization D) Better than monetary policy for "fine-tuning" the economy

**NOT: Not very good at pushing the economy in a particular direction OR Better than monetary policy for month-to-month stabilization

Refer to the graph. What combination would most likely cause a shift from AD1 to AD2?

A decrease in taxes and an increase in government spending

Proponents of the notion of a "political business cycle" suggest that:

A possible cause of economic fluctuations is the use of fiscal policy by policy-makers for political purposes and goals

Refer to the above graph. What combination would most likely cause a shift from AD1 to AD3?

An increase in taxes and a decrease in government spending

How is the public debt calculated?

By cumulating the annual difference between tax revenues and government spending over the years

Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget rule that would require the Federal government to balance its budget during a recession would be:

Contractionary and worsen the effects of the recession

The intent of contractionary fiscal policy is to:

Decrease aggregate demand

The set of fiscal policies that would be most contractionary would be a(n):

Decrease in government spending and an increase in taxes

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n):

Expansionary fiscal policy

A Federal budget deficit exists when:

Federal government spending exceeds tax revenues in a given year

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

Fiscal policy

The crowding-out effect arises when:

Government borrows in the money market, thus causing an increase in interest rates

Which combination of fiscal policy actions would most likely offset each other?

Increase taxes and government spending

One of the potential consequences of the public debt is that it may:

Lead to additional future taxes that reduce economic incentives

The goal of expansionary fiscal policy is to increase:

Real GDP

Refer to the figure. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to control demand-pull inflation?

Shift aggregate demand by increasing taxes

One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the:

Start of the recession and the time it takes to recognize that the recession has started

If people expected that a fiscal policy in the form of a tax cut was temporary, then this policy's effect on the economy will tend to be:

Weaker

The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the table. In which year is there a budget surplus? Government Tax Spending Revenue GDP Year 1 $800 $825 $4,000 Year 2 $850 $850 $4,200 Year 3 $900 $875 $4,350 Year 4 $950 $900 $4,500 Year 5 $1,000 $925 $4,600

Year 1

The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the table. The budget deficit was $75 billion in: Government Spending Tax Revenues GDP Year 1 $800 $825 $4,000 Year 2 $850 $850 $4,200 Year 3 $900 $875 $4,350 Year 4 $950 $900 $4,500 Year 5 $1,000 $925 $4,600

Year 5