Chapter 16- Fiscal Policy

Which of these fiscal policy actions will increase real GDP in the short run? An increase in government expenditures An increase in the individual income tax An increase in the Social Security tax

An increase in government expenditures

Which of these is an example of an automatic stabilizer? An unemployment benefit program An increase in tax rates to reduce inflation An increase in government spending to fight a recession

An unemployment benefit program

Which of these statements about the federal debt is correct?

At some point, the government may have to raise taxes or cut spending to pay interest on the debt. The federal government is in danger of defaulting on its debt. Interest payments are currently about 60 percent of total federal expenditures.

Which of these would be a fiscal policy the government might want to use if the economy is operating at too high a level of output? Increasing income tax rates Increasing the money supply and lowering interest rates Increasing government purchases of goods and services

Increasing income tax rates

Which of these are the largest sources of federal government revenues? Individual income taxes and social security withholdings Corporate income taxes and sales tax Property taxes and excise taxes

Individual income taxes and social security withholdings

Which of these statements is true about using fiscal policy to stabilize the economy? The delay caused by the legislative process is typically longer for fiscal policy than for monetary policy. It is easier to get the timing right for implementing fiscal policy than for monetary policy. Fiscal policy is used more often than monetary policy when the economy is in a recession.

The delay caused by the legislative process is typically longer for fiscal policy than for monetary policy.

Which of these is the main reason for the long-run funding problems of Social Security? The number of workers per retiree continues to decline. Too many workers are delaying retirement until past age 65. The health of the typical American is declining.

The number of workers per retiree continues to decline.

Taxes and transfer payments that stabilize GDP without requiring explicit actions by policymakers are called __________. automatic stabilizers expansionary fiscal policy discretionary spending

automatic stabilizers

Every time the federal government runs a budget deficit, the Treasury must: borrow funds from savers by selling U.S. Treasury securities. print money in order to finance the excess expenditures. supply funds in the federal funds market.

borrow funds from savers by selling U.S. Treasury securities.

If the federal government's expenditures are less than its revenue, there is a __________. budget surplus budget deficit bond sale

budget surplus

All the programs that Congress authorizes on an annual basis, which are not automatically funded by the prior laws passed by Congress, are called __________. discretionary spending mandatory spending entitlements

discretionary spending

The tax multiplier equals the change in: equilibrium GDP divided by the change in taxes. equilibrium GDP multiplied by the change in taxes. taxes divided by the change in equilibrium GDP.

equilibrium GDP divided by the change in taxes.

The American Recovery and Reinvestment Act of 2009 is a clear example of: expansionary fiscal policy. an automatic stabilizer. contractionary fiscal policy.

expansionary fiscal policy.

Government policies that increase aggregate demand are called __________. expansionary policies contractionary policies recessionary policies

expansionary policies

When the economy is in a recession, the government can: increase government purchases or decrease taxes in order to increase aggregate demand. reduce expenditures and leave taxes constant in order to stimulate aggregate demand. decrease government purchases or increase taxes in order to decrease aggregate supply.

increase government purchases or decrease taxes in order to increase aggregate demand.

Budget deficits automatically __________ during recessions and __________ during expansions. increase, decrease increase, increase decrease, increase

increase, decrease

We would expect the tax multiplier to be __________ in absolute value than the government purchases multiplier. smaller larger the same

smaller

he national debt is best measured as the: total value of U.S. Treasury securities outstanding. total value of stocks issued in a country. value of all debts of private citizens and businesses.

total value of U.S. Treasury securities outstanding.

The largest and fastest growing category of federal expenditures is __________. transfer payments interest on the national debt defense spending

transfer payments

The decline in private expenditures that results from an increase in government purchases is known as: crowding out. stabilization. reduction.

crowding out.

When the tax rate increases, the size of the multiplier effect: decreases. increases. remains the same.

decreases.

The cyclically adjusted budget deficit: is measured as if the economy were at potential real GDP. is never negative. moves up and down as the economy moves around the potential real GDP.

is measured as if the economy were at potential real GDP.

Changes in the federal tax rate or changes in government spending designed to achieve some macroeconomic policy objective are known as: fiscal policy. monetary policy. consumption.

fiscal policy.