Macroeconomics Chapter 13

The group of three economists appointed by the president to provide fiscal policy recommendations is the:

Council of Economic Advisers.

Discretionary fiscal policy refers to:

intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

Countercyclical discretionary fiscal policy calls for:

deficits during recessions and surpluses during periods of demand-pull inflation.

Fiscal policy refers to the:

deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

Expansionary fiscal policy is so named because it:

is designed to expand real GDP.

Contractionary fiscal policy is so named because it:

is aimed at reducing aggregate demand and thus achieving price stability.

An economist who favors smaller government would recommend:

tax cuts during recession and reductions in government spending during inflation.

An economist who favored expanded government would recommend:

increases in government spending during recession and tax increases during inflation.

Discretionary fiscal policy will stabilize the economy most when:

deficits are incurred during recessions and surpluses during inflations.

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward:

an excess of government expenditures over tax receipts.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

Reductions in federal tax rates on personal and corporate income.

Which of the following represents the most expansionary fiscal policy?

A $10 billion increase in government spending.

Which of the following represents the most contractionary fiscal policy?

A $30 billion decrease in government spending.

A contractionary fiscal policy is shown as a:

leftward shift in the economy’s aggregate demand curve.

An expansionary fiscal policy is shown as a:

rightward shift in the economy’s aggregate demand curve.

Refer to the diagram, in which Qf is the full-employment output. If the economy’s current aggregate demand curve is AD0, it is experiencing:

a negative GDP gap.

Refer to the diagram, in which Qf is the full-employment output. If the economy’s current aggregate demand curve is AD3, it is experiencing:

a positive GDP gap.

Refer to the diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD3 to AD2 is consistent with:

a contractionary fiscal policy.

Refer to the diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD1 to AD2 is consistent with:

an expansionary fiscal policy.

In the diagram, it is assumed that investment, net exports, and government purchases:

are independent of the level of GDP.

Built-in stability means that:

with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.

A major advantage of the built-in or automatic stabilizers is that they:

require no legislative action by Congress to be made effective.

Which of the following best describes the built-in stabilizers as they function in the United States?

Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400:

the budget will be balanced.

Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit:

at any level of GDP below $400.

Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. In this economy:

tax revenues vary directly with GDP, but government spending is independent of GDP.

The cyclically adjusted budget tells us:

what the size of the federal budget deficit or surplus would be if the economy was at full employment.

When current government expenditures exceed current tax revenues and the economy is achieving full employment:

the cyclically adjusted budget has a deficit.

When current tax revenues exceed current government expenditures and the economy is achieving full employment:

the cyclically adjusted budget has a surplus.

If the full-employment GDP for the economy is at L, then we can say with certainty that the:

cyclically adjusted budget will have a surplus.

With the expenditures programs and the tax system shown in the diagram:

deficits will occur at income levels below K, and surpluses above K.

An effective expansionary fiscal policy will:

increase the cyclically adjusted deficit but reduce the actual deficit.

Economists refer to a budget deficit that exists when the economy is achieving full employment as a:

cyclically adjusted deficit.

The federal budget deficit is found by:

subtracting government tax revenues from government spending in a particular year.

The amount by which government expenditures exceed revenues during a particular year is the:

budget deficit.

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the:

budget surplus.

Which of the following best describes the idea of a political business cycle?

Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

The political business cycle refers to the possibility that:

politicians will manipulate the economy to enhance their chances of being reelected.

The crowding-out effect of expansionary fiscal policy suggests that:

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes:

the crowding-out effect.

The U.S. public debt:

consists of the historical accumulation of all past federal deficits and surpluses.

The public debt is the amount of money that:

the federal government owes to holders of U.S. securities.

The public debt is held as:

Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

Recessions have contributed to the public debt by:

reducing national income and therefore tax revenues.

In 2012, the U.S. federal debt held by the public was:

about 70 percent of the size of the GDP.

In 2012, the U.S. public debt was about:

$16.4 trillion.

What percentage of the U.S. public debt is held by federal agencies and the Federal Reserve?

40 percent.

Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions?

33 percent.

To say that "the U.S. public debt is mostly held internally" is to say that:

the bulk of the public debt is owned by U.S. citizens and institutions.

The federal government has a large public debt that it finances through borrowing. As a result, real interest rates are higher than otherwise and the volume of private investment spending is lower. This illustrates the:

crowding-out effect.