MACRO ch.8

Discretionary fiscal policy is independent of Congress and based on the progressivity of the tax system. T/F

F what they're describing is NON-discretionary fiscal policy

Refer to the above diagram. The economy is at equilibrium at point B. What fiscal policy would increase real GDP? Decrease aggregate demand from AD2 to AD3 by decreasing government spending. Increase aggregate demand from AD2 to AD3 by decreasing taxes. Increase aggregate demand from AD2 to AD1 by decreasing taxes. Decrease aggregate demand from AD2 to AD3 by increasing government spending.

Increase aggregate demand from AD2 to AD3 by decreasing taxes.

The greater the progressivity of the tax system, the less is the built-in stability of the economy. T/F

F

The impact of an expansionary fiscal policy may be strengthened if it crowds out some private investment spending. T/F

F crowding out effect is DECREASE private investment spendings, so it won't strengthen it

Another term for the full-employment budget is the: cyclically adjusted budget. administrative budget. actual budget. cyclical budget.

cyclically adjusted budget.

An expansionary fiscal policy can be illustrated by a(n): increase in aggregate supply. decrease in aggregate demand. change in the price level. increase in aggregate demand.

increase in aggregate demand.

Built-in stabilizers: increase the government's deficit during a recession. intensify the business cycle. reduce the size of the multiplier. are a part of discretionary fiscal policy.

increase the government's deficit during a recession.

An increase in the public debt will: increase incentives to work and bear risk. increase the inequality in the distribution of income. decrease the potential for higher taxation in the United States. decrease the U.S. debt held by citizens and institutions in foreign nations.

increase the inequality in the distribution of income.

The last year there was a surplus in the actual U.S. federal budget was in: 2001. 2002. 2003. 2004.

2001

What was the first year that Social Security revenues fell below Social Security retirement payments? 2010. 2014. 2009. As of 2015, Social Security revenues continue to exceed Social Security retirement payments.

2009

In 2017, approximately what percentage of the public debt was held by foreign individuals and institutions? 41 percent 31 percent 15 percent 26 percent

31 percent

An increase in taxes would be an expansionary fiscal policy. T/F

F

Which of the following is the primary reason for the current and impending shortfalls in Social Security funding? High unemployment rates among Millennial workers. Massive increases in Social Security retirement benefits. Reductions in payroll taxes used to fund Social Security. Baby boomers moving into retirement age in large numbers.

Baby boomers moving into retirement age in large numbers.

Which combination of fiscal policy actions would most likely be offsetting? Increase in taxes but no change in government spending Decrease in taxes but no change in government spending Increase in taxes and government spending Decrease in taxes and increase in government spending

Increase in taxes and government spending

AD0

Refer to the above diagram, in which Qf is the full-employment output. An expansionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at: AD0. AD2. AD3. None of these.

reduce government expenditures or increase taxes.

Refer to the above diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD3, it would be appropriate for the government to: increase government expenditures or reduce taxes. reduce government expenditures or increase taxes. reduce unemployment compensation benefits. reduce government expenditures and taxes by equal-size amounts.

shift in the aggregate demand curve from AD1 to AD2.

Refer to the above diagram. An expansionary fiscal policy can best be represented by a: shift in the aggregate demand curve from AD3 to AD2. shift in the aggregate demand curve from AD2 to AD1. shift in the aggregate demand curve from AD1 to AD2. movement along the aggregate demand curve.

cyclically adjusted budget surplus. surplus --> increase in tax revenues --> from A to B it's going upward

Refer to the above diagram. Assume that G and T1 are the relevant curves, the economy is currently at A, and the full-employment GDP is B. This economy has a(n): cyclically adjusted budget surplus. actual budget surplus. cyclically adjusted budget deficit. actual budget deficit.

cyclically adjusted budget will produce a deficit. at H tax revenue is 0 that makes it a deficit

Refer to the above graph. If the full-employment level of GDP for this economy is at H, the: cyclically adjusted budget will produce a surplus. actual budget will produce a deficit. actual budget will produce a surplus. cyclically adjusted budget will produce a deficit.

A decrease in taxes and an increase in government spending

Refer to the above graph. What combination would most likely cause a shift from AD1 to AD2? An increase in taxes and a decrease in government spending A decrease in taxes and a decrease in government spending An increase in taxes and an increase in government spending A decrease in taxes and an increase in government spending

Years 2, 4, and 5 b/c those are the years that are less than the max deficit(2.0) in year 3

Refer to the above information. In which year(s) was fiscal policy contractionary? Years 2, 4, and 5 Years 1, 2, and 5 Year 3 only Year 2 only

If government spending that gives rise to a budget deficit is for public investment projects such as highways, this spending can increase the economy's future production capacity. T/F

T

Which would tend to reduce the crowding-out effect that occurs when the federal government increases its borrowing to finance a deficit? The expenditures fail to contribute to the development of human capital. The economy is operating at less than full employment. The deficit financing reduces the profit expectations of business firms. The economy is operating at full employment.

The economy is operating at less than full employment. crowding effect increases gov. deficit, to reduce crowding effect --> gov. should operate in less than full employment so fiscal policy can be used

One reason the public debt will not bankrupt the federal government is that the: debt has a procyclical effect on the economy. debt can be refinanced by selling new bonds. burden of the debt will be crowded out by new investment. cost is shifted to future generations.

debt can be refinanced by selling new bonds.

The set of fiscal policies that would be most contractionary would be a(n): decrease in government spending and an increase in taxes. decrease in government spending and taxes. increase in government spending and taxes. increase in government spending and a decrease in taxes.

decrease in government spending and an increase in taxes.

When the federal government takes action to change taxes and spending to stimulate the economy, such policy is: nondiscretionary. discretionary. automatic. passive.

discretionary discretionary: action is taken non-discretionary: policy set built in stabilizers(no action)

The cyclically adjusted deficit as a percentage of GDP is 1 percent in year 1. This deficit becomes a surplus of 1 percent of GDP in year 2. It can be concluded from year 1 to year 2 that: he federal government is decreasing taxes. the federal government is increasing spending. fiscal policy was expansionary. fiscal policy was contractionary.

fiscal policy was contractionary.

Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's deficit that: produce a full-employment budget. reinforce changes in GDP. help offset changes in GDP. produce a cyclically adjusted budget

help offset changes in GDP.

Discretionary fiscal policy is so named because it: is invoked secretly by the Council of Economic Advisers. is undertaken at the option of the nation's central bank. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. occurs automatically as the nation's level of GDP changes.

involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. discretionary taking action! changing G and T NON-discretionary is setting policies for built in stabilzers

Fiscal policy refers to the: altering of the interest rate to change aggregate demand. manipulation of government spending and taxes to stabilize domestic output, employment, and the price level. manipulation of government spending and taxes to achieve greater equality in the distribution of income. fact that equal increases in government spending and taxation will be contractionary.

manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.

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. know that fiscal policy was expansionary. know that fiscal policy was producing a cyclical deficit. know that fiscal policy was contractionary.

not be able to determine the direction of fiscal policy from the information given. -didn't inform you government expenditures or tax

The Council of Economic Advisers gives economic advice to the: Federal Reserve System. U.S. House of Representatives. president. U.S. Senate.

president

The time that elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n): operational lag. administrative lag. recognition lag. budget lag.

recognition lag.

The public debt is the amount of money that: the federal government owes to taxpayers. state and local governments owe to the federal government. the federal government owes to holders of U.S. securities. Americans owe to foreigners.

the federal government owes to holders of U.S. securities.