chapter 16 econ

After September​ 11, 2001, the federal government increased military spending on wars in Iraq and Afghanistan. Is this increase in spending considered fiscal​ policy?

No. The increase in defense spending after that date was designed to achieve homeland security objectives.

Government transfer payments include which of the​ following?

Social Security and Medicare programs

Which of the following would be classified as fiscal​ policy?

The federal government cuts taxes to stimulate the economy.

To evaluate the size of the federal budget deficit or surplus over​ time, it would be best to look at the

budget deficit or surplus as a percentage of GDP.

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

transfer payments.

Does government spending ever reduce private​ spending?

yes, due to crowding out

An economic expansion tends to cause the federal budget deficit to​ ________ because tax revenues​ ________ and government spending on transfer payments​ ________.

​decrease; rise; fall

An increase in individual income taxes​ ________ disposable​ income, which​ ________ consumption spending.

​decreases; decreases

What is the difference between federal government purchases​ (spending) and federal government​ expenditures?

Government purchases are included in government expenditures.

When is it considered​ "good policy" for the government to run a budget​ deficit?

When borrowing is used for​ long-lived capital goods.

What are the gains to be had from simplifying the tax​ code?

all of the above a) increased efficiency of house holds and firms b) greater clarity of the decisions made by house holds and firms c) resources from the tax preparation industry freed up from other endeavors

In the long​ run, increases in government purchases result in

complete crowding out.

The simple multiplier effect shows the resulting change in real GDP due to an increase in government purchases or a decrease in taxes assuming that the price level is _______. In reality, the SRAS is ________. As a​ result, when AD shifts to the​ right, in reality the change in real GDP will be ________ it would be if the price level were constant.

constant upward sloping less than

​One-time tax​ rebates, such as those in 2001 and​ 2008, increase consumption spending by less than a permanent tax cut because​ one-time tax rebates increase

current income.

The multiplier effect is only a consideration for increases in government purchases.

false

Fiscal policy refers to changes in

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

An increase in government purchases will increase aggregate demand because

government expenditures are a component of aggregate demand.

Congress and the president carry out fiscal policy through changes in

government purchases and taxes.

If the economy is falling below potential real​ GDP, which of the following would be an appropriate fiscal policy to bring the economy back to​ long-run aggregate​ supply? An increase in

government purchases.

Each year that the federal government runs a​ deficit, the federal debt Each year that the federal government runs a​ surplus, the federal debt

grows, shrinks

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

high rates of economic growth

Expansionary fiscal policy involves

increasing government purchases or decreasing taxes.

Which of the following would not be considered an automatic​ stabilizer?

legislation increasing funding for job retraining passed during a recession

According to the multiplier effect, an initial increase in government purchases increases real GDP by ____________ the initial increase in government purchases.

more than

the higher the tax rate, the _____ the multiplier effect.

smaller

For the federal deficit to be​ lowered,

the federal​ government's expenditures must be lower than its tax revenue.

The federal government debt equals

the total value of U.S. Treasury bonds outstanding.

Policy that is specifically designed to affect aggregate supply and increase incentives to​ work, save, and start a​ business, by reducing the tax wedge

​supply-side economics.

The figure to the right illustrates the economy using the Dynamic Aggregate Demand and Aggregate Supply Model LOADING... What would be the federal​ government's reaction if actual real GDP in 2006 occurs at point B and potential GDP occurs at LRAS 06​? That​ is, what step can we expect the federal government to take to control inflation in the second​ period?

Answer: all of the above a)increase taxes on business b)contradictionary policy c) decrease government spending on goods and services

The figure to the right illustrates the dynamic AD-AS model LOADING.... Suppose the economy is in equilibrium in the first period at point​ (A). In the second​ period, the economy reaches point​ (B). We would expect the federal government to pursue what type of policy in order to move AD 2 to AD Subscript 2 comma policy and reach equilibrium​ (point C) in the second​ period? If the federal​ government's policy is​ successful, what is the effect on the following macroeconomic​ indicators?

Expansionary fiscal policy actual real GDP: inc Potential real GDP: doesn't change Price level: inc Unemployment: dec

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

automatic stabilizers.