ECON 202 - Module 17 Quiz

Approximately what percentage is any initial movement in the level of output offset by automatic stabilizers?

10 percent

What has been the range of federal spending as a percentage of GDP since 1960?

18 percent to 22 percent

Which of the following statements best describes the U.S. budget scenario from World War II until about 1980?

During this period, the United States ran budget deficits almost every year, but the percentage increases in debt were smaller than the percentage growth of GDP, so the debt/GDP ratio declined.

Which of the following statements about fiscal policy is correct?

Fiscal policy can help an economy that is producing below its potential GDP to expand aggregate demand so that it produces closer to potential GDP, thus lowering unemployment.

Which of the following statements best describes structural economic change?

Fiscal policy can increase overall demand, but the process of structural economic change inevitably takes time.

Which of the following statements best describes the central bank response to inflation?

If inflation threatens, the central bank uses contractionary monetary policy to reduce the supply of money, reduce the quantity of loans, raise interest rates, and shift aggregate demand to the left.

Fill in the blank with the correct answer by typing in the box. The argument of ________________ macroeconomic policy is that the government needs to spend money when times are hard and save money when times are good for the sake of the overall economy.

Keynesian

Which of the following items is funded by both the federal and state governments?

Medicaid

Which of the following is projected to rise from 8.3 percent of GDP in 2009 to about 13 percent by 2035 and about 20 percent in 2080?

Medicare and Social Security spending

Which of the following is a reason why the economy has tipped into recession less frequently in recent decades?

The size of government spending and taxes has increased in the second half of the twentieth century.

Which of the following took experienced budget analysts by surprise in the late 1990s?

a large increase in tax revenues and decrease in expenditures on transfer payments

Which of the following was an outcome of political disagreement about balancing the federal budget in 2013?

a two-week government shutdown

If expansionary fiscal policy also causes higher interest rates,

aggregate demand decreases because firms and households are discouraged from borrowing and spending.

Which of the following is a tax that the federal government levies on people who pass assets to the next generation, either after death or during life?

an estate and gift tax

A requirement that the budget be balanced in each calendar year is a misguided overreaction to the fear that in some cases

budget deficits can become too large.

Longer-term forecasts of the U.S. budget, a decade or more into the future, predict

enormous deficits.

Select whether the statement is true or false. The national debt refers to the total amount that the government has borrowed this year.

false

Fill in the blank with the correct answer by typing in the box. Monetary policy can be changed several times each year, but ______ policy is much slower to be enacted.

fiscal

Expansionary fiscal policy increases the level of aggregate demand by

increasing consumption by raising disposable income through cuts in personal income taxes or payroll taxes.

Fill in the blank with the correct answer by typing in the box. Fiscal policy can also contribute to pushing aggregate demand beyond potential GDP in a way that leads to _________________.

inflation

Which of the following budget items has generally declined as a percentage of GDP since 1960 ?

national defense spending

Fill in the blank with the correct answer by typing in the box. The current _________ tax levied on workers, which supports all of Social Security and the hospitalization insurance part of Medicare, will not be enough to cover the expected costs.

payroll

Fill in the blank with the correct answer by typing in the box. The income tax is a ______________ tax, which means that the tax rates increase as a household's income increases.

progressive

The Obama administration and Congress passed an $830 billion expansionary policy in early 2009 involving both tax cuts and increases in government spending, according to the Congressional Budget Office. Which of the following actions offset the federal expansionary policy?

reduced spending by state and local governments

If government tax policy requires Peter to pay $15,000 in tax on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is

regressive

Which of the following is one of the main revenue sources for state and local governments?

sales taxes

Which of the following was produced by a combination of automatic stabilizers and discretionary fiscal policy?

the large budget deficit of 2009

Select whether the statement is true or false. A requirement that the budget be balanced each and every year would prevent automatic stabilizers from working and would worsen the severity of economic fluctuations.

true

Select whether the statement is true or false. Because fiscal policy affects the quantity that the government borrows in financial capital markets, it not only affects aggregate demand, but it can also affect interest rates.

true

Select whether the statement is true or false. Expansionary fiscal policy increases the level of aggregate demand, through either increases in government spending or reductions in taxes.

true

Select whether the statement is true or false. If aggregate demand were to fall sharply so that a recession occurs, then the prescription would be expansionary fiscal policy.

true

Select whether the statement is true or false. Nearly three-quarters of households pay more in payroll taxes than in income taxes.

true

Select whether the statement is true or false. The government borrows funds from U.S. citizens and foreigners to cover its budget deficits.

true

Fill in the blank with the correct answer by typing in the box. Higher ________________ and a weaker economy should lead to increased government spending on unemployment benefits, welfare, and other similar domestic programs.

unemployment

Fill in the blank with the correct answer by typing in the box. The government deficit (or surplus) refers to what happens with the federal, state, and local government budget each __________.

year