Chapter 16

Active changes in tax and spending by government intended to smooth out the business cycle are called​ ________, and changes in taxes and spending that occur passively over the business cycle are called​ ________.

A. discretionary fiscal​ policy; automatic stabilizers

Social Security began as a ​"pay−as−you−​go" ​system, meaning that payments to current retirees were paid

A. from taxes collected from current workers.

Social Security

A. is a system whereby current retirees are paid from taxes collected from current workers.

President​ Trump's proposed increase in spending on infrastructure projects is an example of discretionary fiscal policy aimed at increasing

A. real GDP and employment.

Fiscal policy is defined as changes in federal​ ________ and​ ________ to achieve macroeconomic objectives such as price​ stability, high rates of economic​ growth, and high employment.

A. ​taxes; expenditures

Which of the following would be considered a fiscal policy​ action?

B. A tax cut is designed to stimulate spending during a recession.

The increase in the amount the government collects in taxes when the economy expands and the decrease in the amount the government collects in taxes when the economy goes into a recession is an example of

B. automatic stabilizers.

The three categories of federal government​ expenditures, in addition to government​ purchases, are

B. interest on the national​ debt, grants to state and local​ governments, and transfer payments.

​________ and​ ________ are the largest sources of revenue collected by the federal government.

C. Individual income​ taxes; social insurance taxes

Government transfer payments include which of the​ following?

C. Social Security and Medicare programs

Which of the following is a government​ expenditure, but is not a government​ purchase?

C. The federal government pays out an unemployment insurance claim.

Which of the following is an objective of fiscal​ policy?

C. high rates of economic growth

Which of the following is more likely to be effective in increasing the growth rate of real​ GDP?

C. permanent cuts in business taxes

The largest and fastest−growing category of federal government expenditures is

C. transfer payments.

Fiscal policy refers to changes in

D. federal taxes and purchases that are intended to achieve macroeconomic policy objectives.