EXAM 1000 PArt3

Q. 68 (Figure: Effects of Policy Shifts) If the economy starts below full employment, an expansionary fiscal policy will shift the aggregate demand curve from _____ to _____, and equilibrium will move from point _____ to _____.

AD0; AD1; a; b AD will shift right Equilibrium will move upward towards the AD and AS curves

_____ is known for showing that a reduction in tax rates could increase tax revenues.

Arthur Laffer

_____ marginal tax rates and _____ are commonly used to increase aggregate supply.

Lowering; offering investment tax credits ---------------------------- Why: Lower tax rates wil encourage additional work, savings, investment, risk-taking, and entrepreneurship." Reducing marginal tax rates increases the incentives to work, to take risks, and to save, all of which can expand the economy. a federal tax incentive for business investment.

The interest paid on public debt held by _____ is a real claim on American goods and services.

foreigners

As GDP increases, tax revenues _____ and transfer payments _____.

increase; decline

The largest source of federal government revenues is _____ taxes.

individual income

About how large is the U.S. public debt as a fraction of GDP?

75%

What is a critical dilemma when implementing fiscal policy in reference to timing lags?

The economy may already be in a recovery before fiscal policy is enacted.

The _____ is the amount by which annual government spending exceeds tax revenues.

budget deficit

Which of these is NOT a fiscal policy timing lag? crowding-out lag‍‍ information lag📰 recognition lag🔎 implementation lag 👉 Decision Lag ‍

crowding-out lag

The fact that it takes a very long time for Congress to debate and enact fiscal policies such as a tax cut for low-income households is an example of a(n) _____ lag.

decision

If an advance in technology shifts the long-run aggregate supply curve outward, prices _____ and output _____.

decrease; increases

Which of these are examples of automatic stabilizers? income tax revenues and transfer payments sales tax revenues and income security sales tax rates and transfer payments sales tax rates and income security

income tax revenues and transfer payments

The cyclically balanced budget

is not easy to implement because of the time it takes to define stages of the business cycle.

John, a U.S. taxpayer, buys $5,000 in U.S. savings bonds. When he collects interest on the bonds, who ultimately pays the interest?

other taxpayers like John

The Laffer curve suggests that if tax rates are very high, _____ tax rates will _____ tax revenues.

reducing; increase --------------------------------------------------------- tax revenues: to pay for government activities (employee salaries, infrastructure maintenance), as well as to pay for goods and services provided to United States citizens and businesses.

Automatic stabilizers include all of these EXCEPT unemployment insurance. transfer payments. research and development funding. tax revenues.

research and development funding.

About what percentage of the federal debt is held internally?

43.5%

Examples of discretionary government spending include national defense, transportation, and education.

True

An investment tax credit for solar energy is a supply-side fiscal policy.

True

U.S. Treasury bonds held by which entity would NOT be considered part of internally held debt?

U.S. Federal Reserve

The crowding-out effect of deficit spending says that as deficits rise, what will occur?

an increase in interest rates and a decrease in consumption and investment

If a government collects $1,400 in tax revenue and spends $1,600, it has a

deficit of $200.

Which of these is MOST likely to have a large intergenerational imbalance? payments to research facilities Medicare agricultural price supports construction of a new dam

Medicare

_____ are all examples of discretionary spending. National defense, income security, and veterans' benefits National defense, Social Security, and veterans' benefits Social Security, veterans' benefits, and Medicare Social Security, interest on the national debt, and Medicare

National defense, income security🔐💵, and veterans' benefits

72 (Figure: Effects of Contractionary Fiscal Policies) The graph below depicts an economy in short-run equilibrium at point a. For an economy in this situation, contractionary fiscal policies could

move the economy to full employment.

If the marginal propensity to consume is 0.85, decreasing government spending by $600 will decrease GDP by $706.

False

In the United States, the president, the Senate, and the chairperson of the Fed must agree on spending and taxation policies.

False

Supply-side fiscal policies have the disadvantage of setting up a tradeoff between low inflation and low unemployment rates.

False

Lowering marginal tax rates and increasing government transfer payments are policies commonly used to increase aggregate supply.

False The marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A shift in the long run aggregate supply curve is mainly caused by technological innovations and changes in the size and quality of labor.

Which statement(s) is/are TRUE? I. The crowding-out effect can be mitigated if the funds from deficit spending are used for public investment. II. The majority of the U.S. national debt is held by the foreign public and is owned by foreign banks, corporations, mutual funds, pension plans, and individuals. III. It's always wise for a country to pay off its debt.

I only

Which fiscal policy would LEAST likely result in an increase in aggregate supply? a reduction in marginal tax rates an increase in business regulations an increase in infrastructure spending an increase in grants to fund higher education

an increase in business regulations