CH 11

The federal government's ability to tax incomes originated with

a 20th century amendment to the constitution.

Aggregate demand is directly affected by:

government spending

A rightward AD shift _______ the real GDP gap will take the economy to full-employment GDP.

greater than

To close a recessionary gap, assuming an upward-sloping AS curve, the rightward shift in AD must be ______.

greater than the recessionary gap

Unemployment compensation and welfare payments are examples of _________ payments

transfer

Government spending directly impacts aggregate ____________

demand

Suppose the economy faces an AD excess of $800 billion. If the multiplier is 4, then the desired fiscal restraint is

200 *800/4

Which one of the following fiscal policy "packages" likely produces the most stimulus to the economy?

Higher government purchases, higher transfers, lower taxes.

Which of the following are consistent with fiscal restraint? Increased highway building projects Decreased income transfers Spending cuts Tax hikes

Decreased income transfers Spending cuts Tax hikes

All else equal, which of the following are potentially crowded out as a result of expansionary fiscal policy?

Investment Interest-sensitive consumption

The macroeconomic policies favored by the Trump administration are _____ in nature.

Keynesian

A decrease in aggregate demand reduces

Real GDP

Which of the following are consistent with fiscal restraint?

Spending cuts Tax hikes Decreased income transfers

Which of the following are tools of fiscal policy used to positively stimulate the economy?

Tax reductions Increases in government spending

Pork barrel politics stems from the fact that tax and spending initiatives are designed and implemented by the

U S Congress

Presidents Obama and Trump have shown _____ Keynesian policies.

a preference

All else equal, real GDP tends to fall when there is a decrease in

aggregate demand

Fiscal policy is a tool that can shift ______.

aggregate demand

The amount of additional aggregate demand needed to achieve full employment after allowing for price-level changes is the

aggregate demand short fall

The amount of additional aggregate demand needed to achieve full employment after allowing for price-level changes is the

aggregate demand shortfall

Budget cuts should _______ the size of the desired fiscal restraint to achieve the targeted reduction in aggregate demand.

be less than

Other things equal, an increase in government spending will have what effect on an economy's aggregate demand curve?

cause it to shift out rightward

Government can use tax increases to reduce ______ (household/government) spending

consumption total investment household consumer aggregate

According to economist Joan Robinson, a "second crisis of economic theory" arose from the inability of theory to account for the _____ of employment.

content

The government can (increase/decrease) taxes to shift the aggregate demand curve rightward.

decrease

When all else is constant, a decrease in aggregate demand causes real GDP to

decrease

During a recession, the government can ______ taxes to increase consumption and shift the aggregate demand curve to the _____.

decrease right

Tax cuts increase consumer spending by increasing

disposable income

A cut in transfer payments increases the disposable income of recipients.

false

True or false: Assuming an upward-sloping AS curve, when the AD curve shifts rightward, price levels fall ______.

false

Interest-sensitive consumption and investment are potentially crowded out as a result of expansionary ____________ (monetary/fiscal) policy.

fiscal

Specifying the amount of desired AD shift and specifying the policy tools needed to induce this shift are steps required to formulate _________ policy.

fiscal

The use of government taxes and spending to alter macroeconomic outcomes is referred to as ___________ policy

fiscal

Typically, there is a significant time lag between the recognition of the need for ______ action and the time action is taken.

fiscal

The balance between the private and public sectors is a

hotly debated question

Social Security, welfare, and unemployment benefits are considered to be ______.

income transfers

When the AD curve shifts to the right, the economy moves up along the upward-sloping AS curve, causing price levels to ______.

increase

Assuming an upward-sloping AS curve, to eliminate a recessionary gap, the increase in AD must be ___________ than the size of the gap.

larger

To have the same impact on aggregate demand as a $100 billion increase in government spending, a tax cut would need to be ______.

larger than $100 billion

When an economy's output is ____________ than its full employment output, the economy is in a recessionary gap.

less

When it comes to stabilization objectives, the primary concern of policymakers is to get the _____ of spending correct.

level

A tax cut must be _______ than a proposed increase in government spending to achieve the same amount of shift in the aggregate demand curve.

more

The largest source of revenue for the federal government is

personal income tax

Presidents Obama and Trump have shown _____ Keynesian policies.

preference

Fiscal stimulus is used in response to the economy being in what state?

recession

An economy producing below full-employment output is considered to be operating in a(n) ______.

recessionary gap

When policymakers become concerned about worsening inflation, they are likely to pursue fiscal

restraint

Other things equal, an increase in government spending will shift an economy's aggregate demand curve to the

right

To positively stimulate the economy using fiscal policy, government spending should ____, or taxes should ____, or both.

rise: fall

Increased transfer payments do not increase injections in a "dollar-for-dollar" manner because consumers

save some of the additional transfer payments.

The two steps required to formulate fiscal policy are ______.

select the fiscal policy tools needed to induce the desired shift specify the amount of the desired AD shift

A rightward AD shift equal to the real GDP gap will leave the economy ______.

short of full employment GDP

The amount of additional aggregate demand needed to achieve full employment after allowing for price-level changes is the aggregate demand

shortfall

The amount of additional aggregate demand needed to achieve full employment after allowing for price-level changes is the aggregate demand ____________

shortfall

Compared to the impact government spending has on AD, the impact of a tax decrease of the same size is ______.

smaller

The influence on initial consumption caused by a cut in transfer payments is affected by the MPC just like a

tax hike

There will typically be a significant time lag between

the recognition that fiscal policy is needed and the time action is taken.

Politics is sometimes referred to as being "pork barrel" in nature because politicians often put

their reelection plans above the needs of the economy.

Which of the following are examples of transfer payments? Building a road Social Security payments Welfare payments Unemployment compensation Wages for educators

unemployment welfare payments social security payments