Macro Chapter 13

If the government increases the income tax rate they likely intend for:

C to decrease, shifting aggregate demand to the left.

Assume that the government in some nation intended to respond to low employment via fiscal policy.a. What type of policy would this require?

Expansionary fiscal policy designed to increase aggregate demand.

Which of the following statements is true?

Tax rates refer to the percentage of income that is taxed, whereas tax revenues refer to the dollars collected by government in taxes.

Assume that this policy ended up having an undesirable outcome. How could this happen in terms of formulation and implementation lags?

This could happen if the formulation lag and the implementation lag exceeded the recession.

If the government were to increase its spending, it would expect:

aggregate demand to shift to the right.

A lack of understanding regarding the current state of the economy creates:

an information lag.

Fiscal policy that the government actively chooses to adopt is called:

discretionary fiscal policy.

If the fiscal policy makers aim to increase aggregate demand, they will likely enact:

expansionary fiscal policy.

In 2008, consumers were mailed a stimulus check in response to the recession. The result showed that Ricardian equivalence:

failed to hold, as most people spent a substantial share of the money.

Fiscal policy can:

have real effects on the economy in the short run. bring the economy to its long run equilibrium faster than it can correct itself. cause inflation. ***All of these are true.***

Economist John Maynard Keynes once said, "In the long run, we are all dead." Keynes was likely:

in favor of using fiscal policy.

We use the term expansionary fiscal policy when the overall effect of decisions about taxation and spending is to:

increase aggregate demand.

One way fiscal policy affects aggregate demand is:

indirectly through taxation.

The government budget involves:

money coming in as tax revenues. money going out through government purchases. money going out to individuals for programs that do not involve goods or services. ***All of these are true.***

By 2016, the unemployment rate in the US had fallen from a peak of 10% in 2009 to:

under 5%

Which of the following is not true about The American Recovery and Reinvestment Act of 2009:

It privatized the social security system.

The process of deciding on and passing fiscal policy legislation creates:

a formulation lag.

Fiscal policy most directly affects the economy by increasing or decreasing:

aggregate demand.

A budget deficit is the:

amount of money a government spends beyond the net revenue it brings in.

Increased government spending on unemployment insurance during a recession is an example of:

an automatic stabilizer.

The amount of time it takes for fiscal policy to have an impact on the economy creates:

an implementation lag.

Taxes and government spending that affect fiscal policy without specific action from policymakers are called:

automatic stabilizers.

One reason the government enacts fiscal policy instead of waiting for the economy to correct itself is the automatic adjustment:

can take a very long time.

If the government wants to reduce GDP by $500 million, the most appropriate action is:

contractionary fiscal policy, which includes a reduction in government spending by less than $500 million.

The best fiscal policy for a country suffering from high inflation is:

contractionary fiscal policy, which includes increasing taxes or decreasing spending.

During a severe recession, the government decides to lower its tax rates to give consumers relief, and allow them to pay less in taxes. This is an example of:

discretionary fiscal policy.

Discretionary fiscal policy is:

fiscal policy that the government actively chooses to adopt.

Rising unemployment and decreased business confidence could be signs that the economy is at the start of a(n):

recession

When counteracting a recession, tax rates should be:

reduced through fiscal policy, but tax revenues automatically change without government action.

Contractionary fiscal policy could involve a combination of government:

spending cuts and income tax increases.

Typically, during a recession:

tax revenues fall as unemployment rises, and income falls.