Chapter 16 Macroeconomics
The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. In the figure above, potential GDP is $10 trillion and real GDP is $_____ trillion, so there is a $1 trillion _____ gap
$9 trillion; recessionary
The law-making time lag is best described as the time that it takes
Congress to pass laws needed to change taxes or spending
An increase in income taxes ________ employment and ________ potential GDP
Decreases; decreases
When government outlays exceed tax receipts, the situation is called a budget
Deficit
There are four limitations to the effectiveness of discretionary fiscal policy. Which item below is NOT one of these limitations
Fiscal multiplier
The supply-side effects of an income tax cut ________ potential GDP and ________ aggregate supply
Increase; increase
Needs-tested spending ________ during recessions and ________ during expansions
Increases; decreases
An income tax cut ________ aggregate demand and ________ aggregate supply
Increases; increases
Taxes that vary with real GDP are called
Induced taxes
When the government's outlays equal its tax revenue, the budget
Is balanced and the national debt is not changing
The structural surplus
Is the government budget surplus that would occur if the economy was at full employment
The national debt is the amount
Of debt outstanding that arises from past budget deficits
The magnitude of the tax multiplier is ________ the magnitude of the government expenditure multiplier
Smaller than
Social Security benefits and expenditures on Medicare and Medicaid are classified as
Transfer payments
Discretionary fiscal policy is a fiscal policy action, such as
A tax cut, initiated by an act of Congress
The federal budget is defined as
An annual statement of tax revenues, outlays, and surplus or deficit of the U.S. government
During a recession, unemployment benefit payments increase without the need for any government action. This increase is an example of
Automatic fiscal policy
The use of the federal budget to achieve macroeconomic objectives of high and sustained economic growth and full employment is
Called fiscal policy
The standard view in economics is that tax cuts without ________ will ________ the budget deficit bring ________
Spending cuts; increase; a crowding-out effect
Automatic changes in tax revenues and expenditures that occur as a result of fluctuations in real GDP are referred to as automatic
Stabilizers
The actual budget deficit is equal to the
Structural deficit plus the cyclical deficit
The government has a budget surplus if
Tax revenues are greater than outlays
In the labor market, the difference between the before-tax wage rate and after-tax wage rate is referred to as the
Tax wedge
What two parts of the government that determine the federal budget?
The President and the Congress