Econ Test 4 Ch 12, 13

If the cyclically-adjusted budget shows a deficit zero and the actual budget shows a deficit of about $150 billion, it can be concluded that there is:

A cyclical deficit

If an aggregate demand curve shifts up, it is because

A decrease in taxes and an increase in government spending

An increase in aggregate demand is most likely to be caused by:

A decrease in the tax rates on household income

If an aggregate demand curve shifts down, it is because

An increase in taxes and a decrease in government spending.

Built in stabilizer

Anything that increases the government budget deficit (or reduces its budget surplus) during a recession and increases its budget surplus (or reduces its budget deficit) during an expansion without requiring explicit action by policy makers.

The short-run aggregate supply curve:

Becomes steep at output levels above the full-employment output

The economy experiences a decrease in the price level and an increase in real domestic output. Which is a likely explanation?

Business costs and wage rates have decreased

The U.S. economy was able to achieve full employment with relative price level stability between 1996 and 2000 because aggregate:

Demand increased and aggregate supply increased

The immediate-short-run aggregate supply curve is:

Horizontal

An increase in productivity will:

Increase aggregate supply

If you are told that the government had an actual budget deficit of $50 billion, then you would:

Not be able to determine the direction of fiscal policy from the information given

An aggregate supply curve represents the relationship between the:

Price level and the production of real domestic output

The foreign purchases effect on aggregate demand suggests that a:

Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand

Cyclically adjusted budget

economists use this to adjust actual federal budget deficits and surpluses to account for the changes in tax revenues that happen automatically whenever GDP changes.

Fiscal(financial) Policy

Consists of deliberate changes in government spending, and tax collection designed to achieve full employment, control inflation, and encourage economic growth.

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

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n):

Contractionary fiscal policy

In the mid-1970s, changes in oil prices greatly affected U.S. inflation. When oil prices rose, the U.S. would experience:

Cost-push inflation and falling output

The cyclically-adjusted surplus in the U.S. went from +1.2% of GDP in 2000 to +0.6% of GDP in 2002. This suggests that the government during that period:

Cut taxes and increased spending

The Great Recession of 2007-09 and the consequent policy response made the:

Cyclically-adjusted deficit grow during that period

An increase in personal income tax rates will cause a(n):

Decrease (or shift left) in aggregate demand

The intent of contractionary fiscal policy is to:

Decrease aggregate demand

What is an example of built-in stability? As real GDP decreases, income tax revenues:

Decrease and transfer payments increase

Cost-push inflation is characterized by a(n):

Decrease in aggregate supply and no change in 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

The interest rate effect on aggregate demand indicates that a(n):

Decrease in the price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending

Due to automatic stabilizers, when the nation's total income rises, government transfer spending:

Decreases and tax revenues increase

Demand-pull inflation is illustrated in the short run aggregate supply-aggregate demand model as a shift of the aggregate:

Demand to the right

Contractionary Fiscal Policy

Demand-pull inflation occurs. Government spending reductions, tax increases, or both, designed to decrease aggregate demand and therefore lower or eliminate inflation.

When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is:

Discretionary Fiscal Policy

The American Recovery and Reinvestment Act of 2009 is a clear example of:

Discretionary fiscal policy that made the cyclically-adjusted budget become more negative

In Year 1, the actual budget deficit was $200 billion and the cyclically-adjusted deficit was $150 billion. In Year 2, the actual budget deficit was $225 billion and the cyclically-adjusted deficit was $175 billion. It can be concluded that fiscal policy from Year 1 to Year 2 became more:

Expansionary

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

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

Fiscal Policy

The cyclically-adjusted surplus as a percentage of GDP is 1 percent in Year 1. This surplus becomes a deficit of 2 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that:

Fiscal policy turned more expansionary

The cyclically-adjusted deficit as a percentage of GDP is 2 percent in Year 1. This cyclically-adjusted deficit becomes 1 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that:

Fiscal policy was more contractionary

Budget Deficit

Government spending in excess of tax revenues.

Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that:

Help offset changes in GDP

An expected increase in the prices of consumer goods in the near future will:

Increase (or shift right) in aggregate demand now

A decrease in business taxes will tend to:

Increase aggregate demand and increase aggregate supply

If the price of crude oil decreases, then this would most likely:

Increase aggregate supply in the U.S.

If Congress passed new laws significantly increasing the regulation of business, this action would tend to:

Increase per-unit production costs and shift the aggregate supply curve to the left

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

Increased government spending or decreased taxation, or a combination of the two actions

The American Recovery and Reinvestment Act of 2009 included mostly:

Increases in government spending and decreases in taxes

One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy:

Is not subject to the timing problems of discretionary policy

The real-balances effect on aggregate demand suggests that a:

Lower price level will increase the real value of many financial assets and therefore cause an increase in spending

When changes in taxes and government spending occur in the economy without explicit action by Congress, such policy is called ______ fiscal policy:

Nondiscretionary

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system:

Serves as an automatic stabilizer for the economy

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

A fall in the prices of inputs will shift the aggregate:

Supply curve rightward

If the government wishes to increase the level of real GDP, it might reduce:

Taxes

The cyclically-adjusted budget estimates the Federal budget deficit or surplus if:

The economy were at full employment

A decrease in aggregate supply means:

The real domestic output would decrease and the price level would rise

Expansionary final policy

This policy consists of government spending increases, tax reductions, or both, designed to increase aggregate demand and therefore raise real GDP.

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

Time fiscal action is taken and the time that the action has its effect on the economy

Time fiscal action is taken and the time that the action has its effect on the economy

Time the need for the fiscal action is recognized and the time that the action is taken

The long-run aggregate supply curve is:

Vertical

Budget surplus

When the economy faces demand-pull inflation, fiscal policy, should move toward a government budget surplus. Tax revenues in excess of government spending.

Cyclical Deficit

a by-product of the economy's slide into recession, not the result of discretionary fiscal actions by the government.

Cyclical deficit

a by-product of the economys slide into recession