Ch. 13 Econ Homework
(Last Word) In 1960 the ratio of workers to Social Security and Medicare beneficiaries was __ ; by 2040 it is projected to be __.
5:1; 2:1
Refer to the graph. Assume that the economy is in a recession with a price level of P1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output?
P2 and Q2
The total amount of debt owed by the federal government is represented by the total value of the outstanding
U.S. government securities.
Which of the following represents the most expansionary fiscal policy?
a $10 billion increase in government spending
The economic burden of World War II for the Untied States was primarily
borne by the persons who lived during the war period.
Refer to the graph. Automatic stability in this economy could be enhanced by
changing the tax system so that the tax line has a steeper slope.
If there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement
contractionary fiscal policy.
The federal government has a large public debt that it finances through borrowing. As a result, real interest rates are higher than otherwise and the volume of private investment spending is lower. This illustrates the
crowding-out effect.
Discretionary fiscal policy will likely cause budget
deficits during recessions and surpluses during periods of demand-pull inflation.
In the graph, tax revenues vary
directly with the level of GDP.
If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n)
expansionary fiscal policy.
A federal budget deficit is financed by the
government issuance or sale of Treasury securities.
The cyclically adjusted budget deficit in an economy is zero. If this economy goes into recession, then the actual government budget will be
in deficit.
Suppose the price level is fixed, the MPC is 0.8, and the GDP gap is a negative $200 billion. To achieve full-employment output (exactly), government should
increase government expenditures by $40 billion.
The bursting of the dot-com bubble in 2000, along with the terrorist attacks in 2001, made the U.S. government
increase its cyclically adjusted budget deficit from 2000 to 2002.
In a certain year, the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price-level stability under these conditions, the government should
increase tax rates and/or reduce government spending.
An effective expansionary fiscal policy will
increase the cyclically adjusted deficit but reduce the actual deficit.
The crowding-out effect suggests that
increases in government spending may reduce private investment.
If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by
increasing government spending by $4 billion.
One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy
is not subject to the timing problems of discretionary policy.
The crowding-out effect from government borrowing to finance the public debt is reduced when
public investment complements private investment.
One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the
start of the recession and the time it takes to recognize that the recession has started.
The cyclically adjusted budget estimates the federal budget deficit or surplus if
the economy were at full employment.
The immediate primary cause of the swing from federal budget surpluses in 2000 and 2001 to a budget deficit in 2002 was
the recession of 2001.
The cyclically adjusted budget is
what the size of the federal budge deficit or surplus would be if the economy was at full employment.
