ECON 13
discretionary fiscal policy
A fiscal policy action initiated by an act of Congress
automatic fiscal policy?
An unemployment benefit program
if the United States were on the "wrong" side of the Laffer curve,
Congress could decrease the tax rate and increase tax revenue.
main reason for the long-run funding problems of Social Security?
Demographic changes.
What happens when government spending is greater than government tax revenues?
There is borrowing by the government and the government debt rises.
If the federal government's expenditures are less than its revenue, there is a
a budget surplus
An automatic fiscal policy is
a fiscal policy action that is triggered by the state of the economy.
fiscal policy actions will increase real GDP in the short run?
an increase in government expenditures
Taxes and transfer payments that stabilize GDP without requiring explicit actions by policymakers are called __________.
automatic fiscal policy
progressive tax system
automatically collects higher taxes as income increases which serves to rein in spending during economic expansions
Every time the federal government runs a budget deficit, the government must:
borrow, which adds to the government debt.
A government that spends more than it collects in taxes experiences a:
budget deficit
A government that collects more in taxes than it spends experiences a:
budget surplus
If the federal government's expenditures are less than its revenue, there is a __________.
budget surplus
Supply-side economists point to the Laffer curve as evidence that higher taxes:
can lead to lower overall government revenues.
automatic stabilizers
changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policymakers having to take any deliberate action -smooth fluctuations in the business cycle
Fiscal policy includes
changing taxes, transfer payments, and government expenditure on goods and services.
The decline in private expenditures that results from an increase in government borrowing is known as:
crowding out
Budget deficits automatically___________ during expansions
decrease
When the government increases the tax rate on labor income, the supply of labor
decreases because the tax weakens the incentive to work. But the tax doesn't change labor productivity, so it doesn't change the demand for labor.
A tax on labor income
decreases the supply of labor and the supply curve shifts leftward.
Which of these is the main reason for the long-run funding problems of Social Security?
demographic changes
The American Recovery and Reinvestment Act of 2009 is a clear example of:
discretionary fiscal stimulus.
Generational imbalance
division of the fiscal imbalance between the current and future generations, assuming that the current generation will enjoy the existing levels of taxes and benefits.
When do more people receive needs-tested spending/benefits
during a recession
Government policies that increase aggregate demand are called __________.
fiscal stimulus
One of the primary goals of most governments with regard to the economy is:
full employment
Budget deficits automatically __________ during recessions
increase
Higher government spending would do what to the aggregate demand
increase aggregate demand which is represented by a rightward shift
An economy is experiencing a recessionary gap. The government can
increase expenditure or cut taxes to increase aggregate demand
what is an example that increases aggregate demand
increase government purchases
When the economy is in a recession, the government can:
increase government purchases or decrease taxes in order to increase aggregate demand.
decrease taxes does what to the aggregate demand
increases the aggregate demand
tax wedge
is the gap created between the before-tax and after-tax wage rates
The Laffer curve
is the relationship between the tax rate and the amount of tax revenue collected .
the relationship between the tax rate and the amount of tax revenue collected is called the ______ curve.
laffer
Higher taxes and lower money supply would cause the AD curve to shift
left
decreasing the money supply is an example of what
monetary policy
how to calculate government outlays
revenues plus budget balance
A tax cut pays for itself if the economy lies to the ______ of the maximum point on the Laffer curve.
right
Discretionary fiscal policy
sed to stabilize the economy but it does not occur automatically.
The government debt is best measured as the:
sum of past budget deficits minus the sum of past budget surpluses.
the laffer curve shows
tax cuts can increase tax revenue
example of automatic fiscal policy
tax revenues
fiscal policy
the use of the budget to achieve macroeconomic objectives
the equilibrium level of employment will decrease
the before-tax wage rate will rise, and the after-tax wage rate will fall.
government has to enter the financial markets and borrow money from households to cover the shortfall.
through the issuance of U.S. Treasury securities - bills, notes, and bonds.
economy expands
unemployment falls, the number of people experiencing economic hardship decreases, so needs-tested spending decreases.
The tax wedge is the gap between the before-tax and after-tax
wage rates
When real GDP decreases in a recession
wages and profits fall, so tax revenues fall.
the tax drives a
wedge between the take-home wage and the cost of labor
federal budget of the government
•is an annual statement of the outlays (payments made) and receipts (payments received) of the government of the US,
Fiscal imbalance is the
the present value of the government's commitments to pay benefits minus the the present value of its tax revenues.
fiscal stimulus combinations
-increasing transfer payments -decreasing tax revenues -increasing expenditures on goods/services directly
Needs-tested spending example
-unemployment benefits -food stamps -medicaid
why government uses budget
1.To finance the specific programs and activities that it thinks are important (like national defense and education) To achieve macroeconomic objectives (like full employment
