Econ Chapter 16

The figure above shows a labor market with an income tax.According to the figure above, if there is no income tax, the equilibrium real wage rate is ________ and the equilibrium hours of labor are ________.

$30; 250 billion

A decrease in taxes should be applied in a situation with

a recessionary gap.

Transfer payments include i.social security benefits ii.medicare and medicaid benefits iii.unemployment benefits

all of the above

The use of the federal budget to achieve macroeconomic objectives of full employment and sustainable economic growth is

called fiscal policy.

If the economy is in an equilibrium with real GDP less than potential GDP, a fiscal stimulus could move the economy toward potential GDP by simultaneously ________ taxes and ________ government expenditures on goods and services.

cutting; increasing

If government expenditure on goods and services increase by $100 billion, then aggregate demand

increases by more than $100 billion.

The supply-side effects show that a tax cut on labor income ________ the supply of labor and ________ employment.

increases; increases

Discretionary fiscal policy is defined as fiscal policy

initiated by an act of Congress.

Discretionary fiscal policy is handicapped by

law-making time lags, estimation of potential GDP, and economic forecasting

If we look at the federal government budget over the past 40 years we see that

most years the budget has been in deficit.

Automatic stabilizers are defined as

policy that stabilizes without the need for action by the government.

In order to reduce inflationary pressure on the economy, what fiscal policy can the government use?

raise taxes

The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP.In the figure above, the ________ gap is one trillion dollars. To close the gap, the government can ________ government expenditure and/or ________ taxes.

recessionary; increase; decrease

The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP.In the figure above, the ________ gap is one trillion dollars. To close the gap, the government can change expenditure by ________ one trillion dollars.

recessionary; less than

When an economy faces an inflationary gap, an appropriate fiscal policy is to

decrease government expenditure.

Need-based spending ________ during an expansion and ________ during a recession, which leads to larger budget deficits during the ________ phase of the business cycle

decreases; increases; recession

When the government's outlays exceed its tax revenues, the national debt

grows to finance the budget deficit.

Automatic stabilizers include

hanges in induced taxes and changes in needs-tested spending.

Which of the following is an example of an automatic fiscal policy action?

increased unemployment benefit payments resulting from higher unemployment

Needs-tested spending

increases as unemployment increases