Government Budgets and Fiscal Policy

Identify a policy that is most effective when an economy is in a recession.

A cut in personal income taxes

Identify an example of an expansionary fiscal policy

An increase in government spending on final goods and services

Which of the following policies will be helpful in tackling inflation in an economy?

An increase in income tax rates

Which of the following is an example of a contractionary fiscal policy?

An increase in individual income taxes

** Federal Tax Revenue

As a share of GDP, payroll taxes have increased steadily.

______ are tax and spending rules that have the effect of slowing down the rate of decrease in aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation.

Automatic stabilizers

A tax that collects a greater share of income from those with high incomes than from those with lower incomes

Progressive tax

A tax that is a flat percentage of income earned, regardless of level of income

Proportional tax

The gap between the deficit or surplus in the standardized employment budget and the deficit or surplus in the actual budget shows the impact of the ______.

automatic stabilizers

The primary reason behind predictions of enormous budget deficits in the United States in the near future is the ______—the exceptionally high birthrates that began in 1946, right after World War II, and lasted for about two decades.

baby boom

If a government spends as much as it receives in taxes, it is said to have a ______.

balanced budget

When a government receives more money in taxes than it spends in a year, it runs a ______.

budget surplus

Federal spending and borrowing can cause interest rates to rise and business investment to fall. This is referred to as ______.

crowding out

Once a bill is passed by the government of a country regarding a new policy or project, it takes some time for the funds to be dispersed to the appropriate agencies to kick-start the programs. The time to get the projects started is often called the ______ lag.

implementation

The time to get a bill passed is often referred to as the ______ lag.

legislative

The deficit in the standardized employment budget is smaller than the actual budget deficit if the economy is in a ______.

recession

The time it takes to determine that a recession has occurred is often called the ______ lag.

recognition

Each year, the nonpartisan Congressional Budget Office (CBO) calculates the ______ budget—that is, what the budget deficit or surplus would be if the economy were producing at potential GDP.

standardized employment

In the short run, a government that runs a very large budget deficit can shift ______.

the aggregate demand function to the right and trigger severe inflation.

A situation where a government spends more money than it receives in taxes

Budget deficit

Why did national debt decline in the United States during 1998 to 2001?

Defense spending declined during this period.

______ are policies that require the passing of a law that explicitly changes tax or spending levels.

Discretionary fiscal policies

Which of the following accounts for the largest share of state and local government spending?

Education

The total amount that the government has borrowed over time

National debt

A tax in which people with higher incomes pay a smaller share of their income in tax

Regressive tax

Which of the following is true of the debt/GDP ratio in the U.S.?

The debt/GDP ratio in the United States rose from 2002 to 2008

Identify the correct statement. ** Federal Tax Revenue

The income tax is a progressive tax.

Which is the largest single source of federal government revenue in the United States?

The individual income tax

Which of the following taxes provides funds for Social Security and Medicare?

The payroll tax

Identify the correct trend in government spending in the United States.

The share of GDP spent on Social Security has increased over the years

Identify the correct statement regarding federal spending in the United States.

The share of GDP spent on national defense has declined over the years