AP Macroeconomics - Chapter 31. Fiscal Policy, Deficits, and Debt
primary burden of the public debt is _________
annual interest charge
discretionary changes in government spending are ____________ federal government
at the option of
in expansionary fiscal policy, government ________ money and _________ (increases/decreases) the overall demand for money
borrows increases
when demand-pull inflation occurs, _________ (expansionary/contractionary) fiscal policy is needed
contractionary
payment of interest on the public debt ___________ (mildly/significantly) ____________ (increase/decrease) income inequality because __________
mildly increase Federal tax system is only slightly progressive
virtually any tax will yield ______ (more/less) tax revenue as GDP rises, especially if the tax rate is ________
more progressive
crowding-out effect is strong during ________ (recession/contraction)
recession
economists who believe that government is too large recommend that government __________ during recessions and ____________ during demand-pull inflation
reduce taxes reduce spending
the federal budget deficit in 2009 is a result of __________
reduced tax revenues from lower income stimulus spendings
in a proportional tax system, average tax rate ________ (increases/remains constant/decreases) with GDP
remains constant
taxes ______ (help/restrain) economic expansion
restrain
political business cycle
results when politicians use macroeconomic policy to serve political ends
to avoid recession caused by ratchet effect, the government can reduce spending by ________ (greater/smaller) amount
smaller
_______ hold 60% of federal debt in 2012 and ________ hold 40%
the public sans the Federal Reserve federal government agency and the Federal Reserve
economists who think fiscal policies too uncertain advocate _________
using monetary policies, and economic fluctuations are self-correcting
the ownership of the public debt concentrates among _________ (wealth/poor) groups
wealthy
ratchet effect
when aggregate demand decreases, price levels tend to become inflexible
Council of Economic Advisers
1. a three-member body appointed by the president 2. advise economic policy like discretionary fiscal policy
public debt
1. accumulation of all past federal deficits and surpluses 2. owed by federal government to holders of US government securities
when the economy is near its full capacity, firms will have high investment demand for 2 reasons
1. equipments running at full capacity wear out fast 2. add to their production capacity
crowding-out effect
1. expansionary fiscal policy may increase interest rate and reduce investment spending
cyclically adjusted budget
1. full-employment budget 2. what the federal budget surplus or deficit would be under existing tax rates and government spending if the economy achieves its full-employed level of GDP
why would the large US federal debt bankrupt federal government
1. government can refinance the debt by selling new bonds 2. government can increase taxes
contractionary fiscal policy consists of ________
1. government spending decreases 2. tax increase
budget deficit
1. government spending is greater than tax revenues 2. result of expansionary fiscal policy
built-in stabilizer
1. increase government budget deficit during recession and surplus during expansion 2. non-discretionary 3. tax system: when GDP falls, tax decreases, and increase spending to cushion the economic contraction
built-in stability
1. non discretionary budgetary policy 2. government tax revenues change automatically over business cycle and stabilize the economy
problems of implementing fiscal policy
1. problems of timing 2. political considerations 3. future policy reversals 4. offsetting state and local finance 5. crowding-out effect
two factors that may reduce crowding-out effect
1. public investment increase the economy's future production capacity 2. public-private complementaries
problems of timing of implementing fiscal policy
1. recognition lag 2. administrative lag 3. operational lag
public-private complementaries
1. reduce crowding-out effect 2. public investment may spur some private investments
budget surplus
1. tax revenues are greater than government spending 2. as a result of contractionary fiscal policy
4 types of US government securities
1. treasury bills (short-term securities) 2. treasury notes (medium-term securities) 3. treasury bonds (long-term securities) 4. US saving bonds (long-term, non-marketable bonds)
American-owned debt will arm US purchasing power (True/False)
False
built-in stabilizer can counteract swings in real GDP (T/F)
False
_________ (expansionary/contractionary) fiscal policy is needed wen recession occurs.
expansionary
contractionary fiscal policy will _______ (increase/decrease) aggregate demand and __________ (lower/increase) inflation.
decrease lower
in a recessive tax system, average tax rate ________ (increases/remains constant/decreases) with GDP
decreases
transfer payments __________ (increase/decrease) during economic expansion and __________ (increase/decrease) during economic contraction
decreases increases
expansionary fiscal policy will create budget ___________ (surplus/deficit)
deficit
the upslope of AS curve means that the rightward shift of AD curve causes ______ instead of ________
demand-pull inflation increase in output
zero cyclically adjusted deficit means that the government _____________
does not change its discretionary fiscal policy or the fiscal policy is neutral
tax rebate
fiscal stimulus checks
___________ (foreign/domestic) owned public debt is an economic burden to Americans
foreign
_______ hold 33% of federal debt in 2012 and ________ hold 67%
foreigners americans
expansionary fiscal policy consists of ______
government spending increases tax reduction
the more progressive the tax system, the __________ (greater/smaller) the economy's built-in stability
greater
the smaller the MPC, the _______ (greater/smaller) the tax cut needed to achieve the same amount of rightward shift in consumption and the aggregate demand curve
greater
increase in cyclically adjusted surplus means that the government _____________
has contractionary fiscal policy
increase in cyclically adjusted deficit means that the government _____________
has expansionary fiscal policy
expansionary fiscal policy will ___________ (increase/decrease) aggregate demand and therefore __________ (increase/decrease) real GDP.
increase increase
in a progressive tax system, average tax rate ________ (increases/remains constant/decreases) with GDP
increases
economists who believe that there are unmet social needs recommend that government __________ during recessions and ____________ during demand-pull inflation
increases spendings increases taxes
current popular view on fiscal policy
it can help pus the economy in a particular direction
a large public deny may be a burden to future generations in that ___________
it increases borrowing of money and increases interest rates and decreases investment, leaving future generations fewer capital goods
if the government issues a tax cut during recession, the tax cut must be _______ (larger/smaller) than the proposed increase in government spending to achieve the same amount of rightward shift in the aggregate demand curve
larger
American recovery and reinvestment act of 2009
low- and middle-income tax rebates increase in government spending
changes in government spending without congressional action are called _________
non discretionary
tax-rate changes that the households view as __________ (permanent/temporary) will be more likely to change consumption and aggregate demand
permanent
fiscal policies of local governments are _________
pro-cyclical
_________ tax system has the steepest tax line T
progressive
when the government issues contractionary fiscal policy, there will be budget _________ (surplus/deficit)
surplus
due to operational lag, discretionary fiscal policy has more relied on _______________ (tax changes/government spending changes)
tax changes
average tax rate
tax revenue/GDP
net taxes
taxes minus transfer payments
