CH 16 Final Exam – Flashcards

Fiscal policy refers to

Economists use the term fiscal policy to refer to changes in taxing and spending policies by

The U.S. government increased spending for defense and homeland security after 2001 to fund the war on terrorism and the invasion of Iraq. These spending increases are considered

Changes in taxes and spending that happen without actions by the government are called

Which of the following is an example of an automatic stabilizer? a. an unemployment benefit program b. an increase in tax rates to reduce inflation c. an increase in government spending to fight a recession d. All of the above are automatic stabilizers.

If the government cuts taxes in order to raise aggregate demand in the economy, the action is called

Which of the following fiscal policy actions will increase real GDP in the short run?

When the government takes actions to change taxes and spending, the type of policy involved is called

What is the relationship between government purchases and government expenditures?

Which of the following is the largest category of federal government expenditures, excluding transfer payments

The largest and fastest growing category of federal expenditures is

Spending on most of the federal government's day-to-day activities—including running federal agencies like the Environmental Protection Agency, the FBI, the National Park Service, and the Immigration and Customs Enforcement—make up

Which of the following is the main reason for the long-run funding problems of Social Security?

Which of the following are the largest sources of federal government revenues?

When the economy is in a recession, the government can

Which of the following will reduce the inflation rate?

The goal of expansionary fiscal policy is

An attempt to reduce inflation requires _____________ fiscal policy, which causes real GDP to _________ and the price level to __________.

Which of the following statements is incorrect? a. Just as increasing or decreasing the money supply does not have any direct effect on government spending or taxes, increasing or decreasing government spending or taxes will not have any direct effect on the money supply. b. Fiscal policy and monetary policy may have the same goals, but they have different effects on the economy. c. The only difference between fiscal policy and monetary policy in fighting recessions and stimulating spending is where the money comes from. d. All of the above statements are correct.

By how much will equilibrium real GDP change as a result of a $50 billion decrease in government purchases?

The multiplier effect consists of

How would you decompose the total effect of an increase in government purchases on the aggregate

The tax multiplier equals the change in

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

When the tax rate increases, the size of the multiplier effect ___________.

Increases in government purchases and decreases in taxes have a __________ multiplier effect on equilibrium real GDP, and decreases in government purchases and increases in taxes have a __________ multiplier effect on equilibrium real GDP.

Assume that the absolute size of the government purchases multiplier is larger than the absolute size of the tax multiplier. What happens to equilibrium real GDP if the government increases both government purchases and taxes by the same amount?

Which of the following statements is true about using fiscal policy to stabilize the economy?

Crowding out refers to

According to the crowding-out effect, if the federal government increases spending, the demand for money and the equilibrium interest rate will ___________, which will cause some consumption, investment, and net exports to ___________.

The American Recovery and Reinvestment Act of 2009 is a clear example of

What is the long-run effect of a permanent increase in government spending?

Which of the following is true of any permanent increase in government purchases in the long run?

If the federal government's expenditures are greater than its revenue, there is a

Which of the following was a period of federal budget surpluses?

Budget deficits automatically __________ during recessions and __________ during expansions.

The cyclically adjusted budget deficit,

To obtain a more accurate measure of the effects of the government's spending and tax policies on the economy, economists prefer to look at

Every time the federal government runs a budget deficit, the Treasury must

The national debt is best measured as the

Which of the following statements about the federal debt is correct?

If a tax cut has supply-side effects, then it will

Economists believe that the smaller the tax wedge for any economic activity, such as working, saving, investing, or starting a business,

The effect on the economy of tax reduction and simplification is

Tax simplification and reductions in tax rates will result in additional shifts to the right in LRAS leading to a

Fiscal policy refers to the level of spending by the states and the federal government.

The only difference between fiscal policy and monetary policy is the source of money because fiscal policy is about spending money while monetary policy is about supplying money

Falling federal government tax collections as the level of economic activity slows down is an example of an automatic stabilizer.

Defense spending is the difference between federal government purchases and federal government expenditures.

Increases in government spending will tend to shift the aggregate demand curve to the right.

The larger the government purchases multiplier, the further the aggregate demand curve will shift to the right.

A reduction in taxes will tend to, in the short run, increase the level of real GDP and reduce the price level.

The tax multiplier can be either positive or negative

The larger the change in equilibrium real GDP from a given change in government spending, the larger the government purchases multiplier

Fiscal policy changes in spending can be quickly implemented by Congress

Other things being equal, an increase in government spending will not change the interest rate

In the long run, an increase in government purchases will reduce private spending by the same amount

If federal government spending is larger than tax revenues, there will be a budget deficit and the federal government debt will fall

When there is a budget deficit, the Treasury will borrow from the public by selling bonds.

A lower individual income tax rate will increase labor supply and shift the LRAS to the right.