13 Flashcards by Beatriz Quezada

Prior to the Great Depression, the purpose of the federal budget was to?

Finance the activities of the goverment.

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The use of the U.S. federal budget to help stabilize the economy grew in reaction to the ____and is knows as ___/

Great Depression of the 1930s; fiscal policy

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Fiscal policy includes

decisions related to government expenditure on good and services, the value of transfer payments, and tax revue.

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Fiscal policy involves

the use of tax and spending policies by the government

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Fiscal Policy

involves changing taxes and government spending

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Fiscal policy attempts to achieve all of the following objectives

A stable money supply

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Changes in which of the following is included as part of fiscal policy?

Tax rates

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All of the following are part of fiscal policy expect?

controlling the money supply

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The budget process includes the

President proposing the budget and the congress pass the budget

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which branches of the government play a role in the enacting of the federal budget

1,2,3

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Which of the following government bodies does not participate directly in formulation U.S. fiscal policy?

the federal reserve board

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The purpose of the employment act of 1946 was to

establish goals for the feral government that would promote maximum employment, purchasing power and production

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The employment act of 1946 made the responsibility of the feral government to

promote maximum employment

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The council of Economic Advisers

helps the President and the public stay informed about the state of the economy

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The council of Economic Advisers advisers the

President

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The largest source of government revenues is

Personal Income taxes

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What is the larges source of revenue for the federal government?

Personal income tax

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Which of the following is the larges source of the feral government revenue?

Personal income taxes

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The government receives tax revenues from several sources. Rank them from larges to smalles

Personal, Social, corporate, 2,3,1

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Which of the following is not a revenue source for the feral government?

interest on corporate bond holding

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The largest item of the government outlays

transfer payments

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Expenditures such as social security benefits, farm subsides and grant are considered

transfer payments

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Social Security benefits and expenditures on Medicare and Medicaid are classified as

transfer payments.

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Rank the following federal government outlays from the largest to the smallest.
I. debt interest
II. transfer payments
III. expenditure on goods and services

D) II, III, I
I. debt interest
II. transfer payments
III. expenditure on goods and services

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Which of the following is NOT a government outlay?

purchases of foreign bonds

) All of the following are government outlays EXCEPT A) interest on the government's debt. B) transfer payments. C) purchases of corporate bonds. D) expenditure on goods and services.

purchases of corporate bonds

Federal government outlays as a percentage of GDP are approximately A) 10 percent. B) 25 percent. C) 50 percent. D) 66 percent.

Dollars (billion) Personal income taxes 500 Social Security taxes 400 Corporate income taxes 150 Indirect taxes 75 Transfer payments 1,200 Expenditure on goods and services 225 Debt interest 75 29) The table above has data for a country's government budget. The country has government revenues of ________ billion. A) $900 B) $1,125 C) $1,050 D) $2,100

Dollars (billion) Personal income taxes 500 Social Security taxes 400 Corporate income taxes 150 Indirect taxes 75 Transfer payments 1,200 Expenditure on goods and services 225 30) The table above has data for a country's government budget. Government outlays for the economy equal ________ billion. A) $1,200 B) $1,275 C) $1,500 D) $1,425

The table above has data for a country's government budget. The data show the government is running a ________ billion. A) budget surplus of $300 B) budget deficit of $375 C) budget deficit of $550 D) budget surplus of $650

The largest source of revenue for the federal government is ________ and the largest outlay is for ________. A) corporate taxes; Social Security B) personal income taxes; expenditure on goods and services C) corporate taxes; interest on national debt D) personal income taxes; transfer payments

The government's budget deficit or surplus equals the A) change in outlays divided by change in revenue. B) average outlay divided by average revenue. C) change in revenue minus change in outlays. D) total tax revenue minus total government outlays.

A budget surplus occurs when government A) outlays exceeds tax revenues. B) tax revenues exceeds outlays. C) tax revenues equals outlays. D) tax revenues equal Social Security expenditures.

Whenever the federal government spends more than it receives in tax revenue, then by definition it A) runs a budget surplus. B) operates a balanced budget. C) runs a budget deficit. D) increases economic growth.

The budget deficit A) is the total outstanding borrowing by the government. B) is the difference between government outlays and tax revenues. C) decreased during the Obama Administration. D) reached its peak in the year 2000.

A government incurs a budget deficit when A) taxes are greater than government outlays. B) taxes are less than government outlays. C) exports are greater than imports. D) exports are less than imports

In January 2013 certain tax rates increased, which were predicted to increase the federal government's tax revenue. An increase in tax revenue ________ the government's budget deficit and over time thereby ________ the amount of government debt. A) increases; decreases B) decreases; decreases C) decreases; increases D) increases; increases

If taxes exactly equaled government outlays the A) federal government debt would be zero. B) federal government debt would decrease. C) budget deficit would not change. D) budget deficit would be zero.

If the federal government's tax revenues are greater than its outlays, then the federal budget has a A) deficit. B) surplus. C) transfer payment. D) balanced budget.

By definition, a government budget deficit is the situation that occurs when the A) government outlays exceed what is received in taxes. B) government receipts exceed government outlays. C) government spends money on things which do not produce revenue, such as schools. D) economy goes into a recession.

The U.S. government's budget A) must be balanced each year. B) has mostly been in surplus during the past 30 years. C) has mostly been in deficit during the past 30 years. D) has always been in deficit during the past 30 years.

When tax revenues exceed outlays, the government has a ________, and when outlays exceed tax revenues, the government has a ________. A) budget surplus; budget debt B) budget deficit; budget surplus C) budget debt; budget surplus D) budget surplus; budget deficit

A government that currently has a budget deficit can balance its budget by A) increasing tax revenues by more than it increases outlays. B) increasing both tax revenues and outlays by the same amount. C) decreasing tax revenues by more than it decreases outlays. D) decreasing tax revenues by more than it increases outlays.

In 2017, the U.S. government budget had a deficit. By definition, it must have been the case that A) tax revenues were less than government outlays. B) tax revenues were equal to government outlays. C) tax revenues were greater than government outlays. D) the government debt became negative.

Suppose the only revenue taken in by the government is in the form of income tax, and the tax rate is 10 percent. If aggregate income is $800 billion, and government outlays are $100 billion, then the government budget has A) a deficit of $20 billion. B) a surplus of $20 billion. C) neither a surplus nor a deficit. D) a deficit of $80 billion.

In 2017, the federal government of Happy Isle had tax revenues of $1 million, and spent $500,000 on transfer payments, $250,000 on goods and services and $300,000 on debt interest. In 2014, the government of Happy Isle had a A) balanced budget. B) budget deficit of $50,000. C) budget surplus of $50,000. D) budget deficit of $1,050,000

The federal government debt is equal to the A) obligations of benefits from federal taxes and expenditures. B) sum of all annual federal government outlays. C) sum of past budget deficits minus the sum of past budget surpluses. D) annual difference between federal government tax revenues and outlays

The sum of past budget deficits minus the sum of past budget surpluses refers to A) the national debt. B) the cyclically unbalanced budget. C) the structural national debt. D) the federal government net worth.

If the government has a balanced budget, the total amount of government debt is A) increasing. B) decreasing. C) constant. D) zero

If the government runs a surplus, the total amount of government debt is A) increasing. B) decreasing. C) constant. D) zero.

If the government runs a deficit, the total amount of government debt is A) increasing. B) decreasing. C) constant. D) zero.

An increase in the government ________ reduces the government's ________. A) budget deficit; debt B) budget surplus; debt C) debt; budget deficit D) None of the above answers is correct.

Suppose a country has been running a persistent government budget deficit. If the deficit is reduced, but remains positive A) government debt will increase. B) government debt will decrease. C) the country will experience a budget surplus. D) interest payments on the debt immediately will decrease.

If tax revenues equal $1.5 billion and government outlays equal $1.6 billion, then the A) government budget has a deficit of $0.1 billion. B) government budget has a surplus of $0.1 billion. C) government debt is equal to $0.1 billion. D) government debt declines by $0.1 billion.

The gross public debt was approximately $6 trillion in 2002 and approximately $16 trillion in 2012. These numbers definitely indicate that in the 10 years between 2002 and 2012 A) the government had budget deficits that totaled about $10 trillion. B) the government had budget deficits of about $10 trillion per year. C) government outlays increased by about $1 trillion per year. D) government receipts decreased by about $1 trillion per year.

A new country has been in existence for only two years. In the first year, tax revenues were $1.0 million and outlays were $1.5 million. In the second year, tax revenues were $1.5 million and outlays were $2.0 million. At the end of the second year, the total government debt was A) $0.5 million. B) $1 million. C) $2.5 million. D) $3.5 million.

What is the amount of the surplus or deficit incurred in year 1 by the government shown in the above table? A) $0 B) $25 billion deficit C) $25 billion surplus D) $240 billion surplus

What is the amount of the surplus or deficit incurred in year 2 by the government shown in the above table? A) $0 B) $5 billion surplus C) $5 billion deficit D) $250 billion surplus

What is the amount of the surplus or deficit incurred in year 3 by the government shown in the above table? A) $0 B) $5 billion surplus C) $5 billion deficit D) $260 billion surplus

What is the amount of the surplus or deficit incurred in year 4 by the government shown in the above table? A) $20 billion deficit B) $35 billion surplus C) $5 billion surplus D) $320 billion surplus

What is the amount of the surplus or deficit incurred in year 5 by the government shown in the above table? A) $15 billion deficit B) $35 billion surplus C) $5 billion surplus D) $325 billion surplus

) The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 1? A) $0 B) $25 billion C) $240 billion D) Not enough information is provided to answer the question.

The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 2? A) $245 billion B) $5 billion C) $250 billion D) $20 billion

The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 3? A) $15 billion B) $5 billion C) $20 billion D) $260 billion

The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 4? A) -$20 billion (The government has net saving rather than debt.) B) $35 billion C) $5 billion D) $320 billion

The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 5? A) -$20 billion (The government has net saving rather than debt.) B) $35 billion C) $50 billion D) $325 billion

The U.S. federal budget over the past 30 years has been A) in balance most years. B) in deficit most of the years. C) in surplus most of the years. D) in surplus about half the time and deficit the other half.

Comparing the U.S. budget position for 2017 to the rest of the world, we see that as a percentage of GDP, the ________ than in most other countries. A) U.S. budget deficit is smaller B) U.S. budget deficit is larger C) U.S. budget surplus is smaller D) U.S. budget surplus is larger

If the government's outlays are $1.5 trillion and its tax revenues are $2.2 trillion, the government is running a budget A) surplus of $0.7 trillion. B) surplus of $3.7 trillion. C) deficit of $0.7 trillion. D) deficit of $3.7 trillion.

Looking at the supply-side effects on aggregate supply shows that a tax hike on labor income A) weakens the incentive to work. B) decreases potential GDP. C) increases potential GDP because people work more to pay the higher taxes. D) Both answers A and B are correct.

Once supply side effects are taken into account, tax cuts for labor income can change I. the supply of labor. II. potential GDP. A) I only B) I and II C) II only D) neither I nor II

Taking account of the supply-side effects, a tax cut on labor income ________ employment and ________ potential GDP. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

If a tax cut increases people's labor supply, then A) tax cuts increase potential GDP. B) tax cuts decrease aggregate demand. C) tax cuts cannot affect aggregate demand. D) Both answers A and B are correct.

The supply side effects of a change in taxes on labor income means that ________ in taxes on labor income will shift the ________. A) an increase; labor supply curve rightward B) an increase; labor supply curve leftward C) a decrease; labor demand curve rightward D) a decrease; labor demand curve leftward

An increase in taxes on labor income ________ the labor supply curve and ________ the labor demand curve. A) shifts; does not shift B) shifts; shifts C) does not shift; does not shift D) does not shift; shifts

An increase in taxes on labor income shifts the labor supply curve ________ and the ________. A) leftward; after-tax wage rate falls B) rightward; before-tax wage rate rises C) leftward; after-tax wage rate rises D) rightward; before-tax wage rate falls

An income tax ________ potential GDP by shifting the ________ curve ________. A) increases; labor demand; rightward B) decreases; labor demand; leftward C) increases; labor supply; rightward D) decreases; labor supply; leftward

On January 1, 2013 the income tax rate for single taxpayers making more than $400,000 per year increased from 35 percent to 39.6 percent. This tax rise has ________ potential GDP. A) increased B) not changed C) decreased D) None of the above answers are correct because the tax rise could have increased, decreased, or not changed potential GDP.

The difference between the before-tax and after-tax rates is referred to as the A) tax plug. B) deadweight gain. C) tax wedge. D) taxation penalty.

In January 2013 the Social Security payroll tax increased by 2 percentage points. This rise in the Social Security payroll tax ________ the U.S tax wedge. A) decreased B) did not change C) increased D) More information about the total amount of the tax is needed to determine the impact on the tax wedge.

If we compare the United States to France, the U.S. tax wedge is ________ the French tax wedge. A) larger than B) equals to C) smaller than D) not comparable to

If we compare the United States to France, we see that potential GDP per person in France is ________ than that in the United States because the French tax wedge is ________ than the U.S. tax wedge. A) greater; larger B) greater; smaller C) less; larger D) less; smaller

An increase in taxes on interest income ________ supply of loanable funds curve and ________ the demand for loanable funds curve. A) shifts; does not shift B) does not shift; shifts C) does not shift; does not shift D) shifts; shifts

The supply side effects of a cut in tax rates include ________ in the supply of labor and ________ in the supply of loanable funds. A) an increase; an increase B) an increase; a decrease C) a decrease; an increase D) a decrease; a decrease

When interest income is taxed and the inflation rate rises, the tax revenue collected by the government A) increases. B) doesn't change. C) decreases. D) could either increase or decrease.

Suppose that the tax rate on interest income is 50 percent, the real interest rate is 3 percent, and the inflation rate is 4 percent. In this case, the real after-tax interest rate is equal to A) -0.5 percent. B) 3.5 percent. C) 3.0 percent. D) 4.0 percent

Suppose that the tax rate on interest income is 25 percent, the real interest rate is 4 percent, and the inflation rate is 4 percent. In this case, the real after-tax interest rate is equal to A) .5 percent. B) 3.5 percent. C) 4.0 percent. D) 2.0 percent.

The Laffer curve is the relationship between A) government purchases and potential GDP. B) tax rates and potential GDP. C) tax revenue and potential GDP. D) tax rates and tax revenue.

During the Reagan administration in the 1980s, tax rates were ________ and the budget deficit ________. A) raised; increased B) raised; decreased C) cut; increased D) cut; decreased

According to the Laffer curve, raising the tax rate A) always increases the amount of tax revenue. B) always decreases the amount of tax revenue. C) does not change the amount of tax revenue. D) might increase, decrease, or not change the amount of tax revenue.

The Laffer curve shows that increasing ________ increases ________ when ________ low. A) tax revenue; potential GDP; tax revenue is B) tax rates; tax revenue; tax rates are C) potential GDP; tax revenue; tax revenue is D) None of the above answers is correct.

According to the Laffer Curve, when tax rates are low, there is ________relationship between them and tax revenue. A) a positive B) a negative C) sometimes a positive, sometimes a negative D) an indeterminate

According to the Laffer Curve, the amount of tax revenue _______when tax rates are ________ and tax rates are ________. A) increases; low; increased B) increases; high; increased C) decreases; low; increased D) decreases; high; decreased

A decrease in the income tax rate A) decreases potential GDP. B) increases the supply of labor. C) increases the tax wedge. D) decreases the demand for labor.

An increase in the income tax rate ________ employment and ________ potential GDP. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

An increase in the tax on interest income ________ the supply of loanable funds and ________ the equilibrium investment. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

The system that measures the lifetime tax burden and benefits of each generation is called A) actuarial genealogy. B) generational actuary. C) generational accounting. D) actuarial accounting.

Generational accounting does NOT investigate issues involving A) the budget deficit. B) government obligations such as Social Security. C) the ownership of corporate stock. D) the burden of taxes.

The ________ the interest rate, the ________ the present value of a given future amount. A) higher; larger B) lower; smaller C) lower; larger D) indeterminate from the information given

If $1,000 is invested at 3 percent per year for 10 years, the investment grows to $1,343.92. This means that the present value of $1,343.92 at an interest rate of 3 percent 10 years from now is A) 3 percent. B) $1,000. C) $343.92. D) $1,343.92.

The present value of the government's commitments to pay benefits minus the present value of its tax revenues is called A) calculated fiscal obligations. B) fiscal imbalance. C) fiscal balance. D) fiscal obligations.

The largest component of the fiscal imbalance is A) Social Security. B) Medicare. C) defense spending. D) none of the above.

Splitting the fiscal imbalance between the current generation and future generations is called A) genealogical accounting. B) actuarial accounting. C) generational imbalance. D) actuarial balance.

Comparing the fiscal imbalance for the current generation versus future generations, it is the case that A) future generations pay a larger share of the fiscal imbalance. B) the current generation pays a larger share of the fiscal imbalance. C) each generation pays half of the fiscal imbalance. D) each generation pays all of its fiscal imbalance.

To eliminate the fiscal imbalance the government could A) lower benefits and lower tax rates. B) increase benefits and increase tax rates. C) lower benefits and increase tax rates. D) increase benefits and lower tax rates

In order for the United States to repay its international debt, the United States would need to A) have a current account deficit. B) cut taxes. C) have a surplus of imports over exports. D) have a surplus of exports over imports.

In order for the United States to have a surplus of exports over imports to repay its international debt, the United States would need to A) increase consumption and decrease saving. B) increase consumption and increase saving. C) decrease consumption and decrease saving. D) decrease consumption and increase saving.

In January 2013 the Chinese government held approximately $1 trillion in U.S. government debt. The Chinese government accumulated such a large about of the U.S. government debt because for the past decade, the United States A) government made substantial foreign aid available to the Chinese government. B) has grown more rapidly than has the Chinese economy. C) has exported more to China than it has imported from China. D) has imported more from China than it has exported to China.

Generational accounting shows that the present value of the government's commitments to pay benefits are ________ the present value of its taxes. A) greater than B) less than C) equal to D) not comparable to

Taxes and government expenditures that change in response to changes in the level of economic activity, without need for additional government action, are examples of A) discretionary fiscal variables. B) automatic fiscal policy. C) built-in monetary stabilizers. D) cyclically balanced budgets.

One characteristic of automatic fiscal policy is that it A) requires no legislative action by Congress to be made effective. B) automatically produces surpluses during recessions and deficits during inflation. C) has no effect on unemployment. D) reduces the size of the federal government debt during times of recession.

A fiscal action that is triggered by the state of the economy is called A) the government expenditure multiplier. B) discretionary fiscal policy. C) automatic fiscal policy. D) generational fiscal policy.

A discretionary fiscal policy is a fiscal policy that A) involves a change in government defense spending. B) is triggered by the state of the economy. C) requires action by the Congress. D) involves a change in corporate tax rates.

A fiscal action that is initiated by an act of Congress is called A) the government expenditure multiplier. B) discretionary fiscal policy. C) automatic fiscal policy. D) generational fiscal policy.

Deliberate changes in government expenditures and taxes to influence GDP A) are examples of automatic fiscal policy because the politicians automatically respond. B) are forms of discretionary fiscal policy. C) are enacted by the Council of Economic Advisers. D) operate without time lags.

The stimulus package passed by Congress in 2009 to combat the recession is an example of A) automatic fiscal policy. B) discretionary fiscal policy. C) monetary policy. D) increased taxation.

The difference between automatic fiscal policy and discretionary fiscal policy is that A) Congress initiates automatic fiscal policy. B) the President has nothing to do with discretionary fiscal policy. C) Congress must pass laws implementing discretionary fiscal policy. D) the President initiates discretionary fiscal policy.

When the economy is hit by spending fluctuations, the government can try to minimize the effects by A) changing government expenditures on goods. B) changing taxes. C) changing government expenditures on services. D) all of the above

An example of a discretionary fiscal policy is when A) tax receipts fall as incomes fall. B) unemployment compensation payments rise with unemployment rates. C) food stamp payments rise when the economy is in a recession. D) Congress passes a law that raises marginal tax rates.

An increase in tax rates as a result of a new tax law passed by Congress is an example of A) discretionary fiscal policy. B) increasing the government debt. C) increasing the government deficit. D) needs-tested taxing change.

The tax rebates passed by Congress in 2008 to help move the economy more rapidly toward potential GDP are an example of A) automatic fiscal policy. B) discretionary fiscal policy. C) non-needs spending. D) contractionary fiscal policy.

Unemployment insurance are payments made to unemployed workers. Typically workers are paid for no more than 26 weeks. In December 2012, the federal government passed legislation that would extend the payments to a maximum of 73 weeks. This extension is an example of A) automatic fiscal policy. B) discretionary fiscal policy. C) non-needs spending. D) contractionary fiscal policy.

Tax revenues A) are autonomous. B) are independent of real GDP. C) vary with real GDP. D) are fixed over time.

A fall in income that results in a decrease in tax revenues is an example of A) an automatic fiscal policy. B) needs-tested tax programs. C) a recession. D) a discretionary fiscal policy.

When the economy grows, ________ increase because real GDP ________. A) tax revenues; decreases B) tax revenues; increases C) structural deficits; decreases D) recognition lags; increases

Income taxes in the United States are part of automatic fiscal policy because A) tax revenues increase when income increases, thus offsetting some of the increase in aggregate demand. B) tax revenues decrease when income increases, intensifying the increase in aggregate demand. C) the President can increase tax rates whenever the President deems such a policy appropriate. D) tax rates can be adjusted by the Congress to counteract economic fluctuations.

An example of automatic fiscal policy is when A) tax revenues decrease as real GDP decreases. B) Congress passes a law that raises tax rates. C) Congress decides to cut government expenditure. D) the president drafts a bill to reduce defense spending.

Tax revenues ________ during recessions and ________ during expansions. A) decrease; decrease B) decrease; increase C) increase; expansions D) increase; increase

Spending on programs that result in transfer payments that depend on the economic state of individuals and businesses is called A) transfer spending. B) welfare. C) needs-tested spending. D) business subsidies.

Needs-tested spending ________ during recessions and ________ during expansions. A) decreases; decreases B) decreases; increases C) increases; decreases D) increases; increases

If the economy falls into a recession, which of the following responses constitutes the use of automatic fiscal policy? A) an income tax cut voted on by Congress and quickly signed by the President B) an existing system to make government payments to the growing ranks of unemployed workers C) a new program to fund local governments' hiring of 100,000 street sweepers within a year D) All of the above answers are correct.

Automatic fiscal policy occurs A) because monetary policy is effective. B) because tax revenues and transfer payments fluctuate with real GDP. C) because government expenditures on goods and services fluctuate with real GDP. D) when the Congress makes changes to transfer payment programs.

Automatic fiscal policy is at work if, as real GDP increases, A) transfer payments decrease and interest rates decrease. B) transfer payments increase and tax revenues decrease. C) tax revenues increase and transfer payments decrease. D) tax revenues decrease and interest rates increase.

Because of automatic fiscal policy, when real GDP decreases A) government expenditures decrease and tax revenues increase. B) government expenditures increase and tax revenues decrease. C) government expenditures equal tax revenues. D) the economy will automatically go to full employment.

Government transfer payments ________ during expansions and ________ during recessions. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

During an expansion, tax revenues ________, while during a recession, tax revenues ________. A) decrease; increase B) increase; decrease C) remain stable; decrease D) fail to cover expenditures; fail to match transfer payments

The government budget deficit tends to decrease during the expansion phase of a business cycle because tax revenues ________ and government transfer payments ________. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

The structural deficit or surplus is the A) difference between actual government outlays and actual government receipts. B) change in national debt that will result from current budgetary policies. C) government budget deficit or surplus that would occur if the economy were at potential GDP. D) actual government budget deficit or surplus minus expenditures for capital improvements.

The structural deficit is the deficit A) during a recession. B) during an expansion. C) that would occur at full employment. D) caused by the business cycle.

The structural deficit is the deficit that occurs when A) real GDP departs from potential GDP. B) real GDP equals potential GDP. C) aggregate demand is greater than short-run aggregate supply. D) short-run aggregate supply is greater than aggregate demand.

The structural surplus A) equals the actual surplus plus the cyclical surplus. B) is the government budget surplus that would exist if the economy was at potential GDP. C) is, by definition, equal to the negative of the cyclical deficit. D) is legally required to be positive.

A structural deficit occurs when the government budget has a deficit A) even though real GDP is less than potential GDP. B) even though real GDP is greater than structural GDP. C) even though real GDP is equal to potential GDP. D) that is nominal, as opposed to a real budget deficit.

The structural deficit is that deficit that would exist A) with the taxes and outlays that would occur if the economy was at the equilibrium level of real GDP. B) with the taxes and outlays that would occur if the economy was at the full employment level of real GDP. C) if tax rates were set to maximize tax revenues. D) if there were no discretionary fiscal interventions into the economy.

At the start of 2013, the U.S. government predicted that economic growth would rise by 2016 and that the government's deficit would also increase. The government therefore was predicting that in 2016 the cyclical deficit would ________ and the structural deficit would ________. A) increase; increase B) decrease; increase C) increase; decrease D) decrease; decrease

The cyclical deficit is the portion of the deficit A) created by fluctuations in real GDP. B) that is the result of nondiscretionary federal spending. C) that would exist if the economy were at potential real GDP. D) the result of discretionary federal spending.

A cyclical surplus is a A) budget surplus only because real GDP is less than potential GDP. B) budget surplus only because real GDP is greater than potential GDP. C) budget surplus only because real GDP is equal to potential GDP. D) nominal, as opposed to real, budget surplus.

In early 2017, economists predicted that the U.S. economy would grow more rapidly than had been projected. If this forecast is correct, then the structural deficit will ________ than had been predicted. A) shrink more rapidly B) shrink more slowly C) increase more slowly D) None of the above are correct because the growth of the economy does not affect the size of the structural deficit.

In early 2017, economists predicted that the U.S. economy would grow more rapidly than had been projected. If this forecast is correct, then the cyclical deficit will ________ than had been predicted. A) shrink more rapidly B) shrink more slowly C) increase more slowly D) None of the above are correct because the growth of the economy does not affect the size of the cyclical deficit.

Which of the following relationships is CORRECT? A) actual budget deficit = structural deficit - cyclical deficit B) cyclical surplus = actual budget deficit - cyclical deficit C) actual budget deficit = structural deficit + cyclical deficit D) cyclical deficit = actual budget deficit + structural deficit

When an economy is above full employment and the government has a budget deficit, that deficit A) exceeds the structural deficit. B) is equal to the structural deficit minus the cyclical deficit. C) is equal to the cyclical deficit minus the structural deficit. D) is less than the structural deficit.

The actual budget deficit is equal to the A) structural deficit. B) cyclical deficit. C) structural deficit minus the cyclical deficit. D) structural deficit plus the cyclical deficit.

If the budget deficit is $50 billion and the structural deficit is $10 billion, the cyclical deficit is A) $10 billion. B) $40 billion. C) $60 billion. D) $50 billion

If the economy has a structural deficit of $25 billion and a cyclical deficit of $75, we can conclude that the current budget deficit is ________ billion. A) $25 B) $50 C) $75 D) $100

In December 2012 the structural deficit was $325 billion and the cyclical deficit was $700 billion. That means that the actual budget deficit equaled ________ billion. A) $1,025 B) $375 C) $700 D) None of the above answers are correct.

Economic data for a mythical economy in the years 2012-2016 are summarized in the figure above. Assume that the spending formulas and tax schedules are identical for all years. When the economy is at full employment, the government has a A) budget surplus. B) balanced budget. C) budget deficit. D) procyclical policy.

Economic data for a mythical economy in the years 2012-2016 are summarized in the figure above. Assume that the spending formulas and tax schedules are identical for all years. When the economy is above full employment, the government has a A) budget surplus. B) balanced budget. C) budget deficit. D) procyclical policy.

Economic data for a mythical economy in the years 2012-2016 are summarized in the figure above. Assume that the spending formulas and tax schedules are identical for all years. When the economy is at less than full employment, the government has a A) budget surplus. B) balanced budget. C) budget deficit. D) procyclical policy.

Using the above figure, if full employment occurs at $19 trillion and the economy is actually producing $19 trillion, then there is a A) cyclical deficit. B) cyclical surplus. C) structural deficit. D) structural surplus.

Using the above figure, if full employment occurs at $18 trillion, but the economy is actually producing $19 trillion, then there is a A) cyclical deficit. B) cyclical surplus. C) structural deficit. D) structural surplus.

n the above figure, if actual GDP = $19 trillion, there is a budget ________ equal to ________. A) surplus; $0.2 trillion B) surplus; $1.3 trillion C) deficit; $0.2 trillion D) deficit; $1.1 trillion

In the above figure A) the structural deficit equals zero. B) any surpluses are cyclical surpluses. C) any deficits are cyclical deficits. D) All of the above answers are correct.

The figure above shows tax revenues and government expenditures in the economy of Meadowlake. Potential GDP is $18 trillion. If real GDP is $18 trillion, then the government has a A) cyclical surplus. B) structural surplus. C) balanced budget. D) cyclical deficit.

The figure above shows tax revenues and government expenditures in the economy of Meadowlake. Potential GDP is $19 trillion. If real GDP is $17 trillion, then the government has a A) cyclical deficit. B) structural deficit. C) structural surplus. D) cyclical surplus.

In the short run, an increase in government expenditure will I. shift the aggregate demand curve rightward. II. increase real GDP. III. increase the government expenditure multiplier. IV. increase the tax multiplier. A) I and II B) I and III C) I, II and III D) III and IV

A reason the government expenditure multiplier is larger than 1 is because A) investment increases when government expenditure increases. B) government expenditure always increases. C) government expenditure changes generate changes in consumption expenditure. D) taxes are left unchanged.

The magnitude of the tax multiplier ________ the magnitude of the government expenditure multiplier. A) is smaller than B) is larger than C) is equal to D) is not comparable to

Suppose that the government increases taxes. One effect of this change is that it decreases A) disposable income, which decreases consumption expenditure and aggregate demand. B) government expenditure, which decreases aggregate demand. C) the size of the government expenditure multiplier. D) disposable income which then decreases aggregate supply.

The demand-side effect of a change in taxes is less than the same sized change in government expenditure because A) only part of the increase in disposable income from the tax cut is spent. B) the amount by which taxes change is affected by the MPC. C) changes in government expenditure do not directly affect consumption. D) tax rates are the same regardless of income levels.

The aggregate demand curve shifts rightward if there is A) an increase in tax rates. B) a decrease in government expenditure. C) an increase in the federal budget surplus. D) an increase in government expenditure.

An increase in government expenditure shifts the AD curve ________ and an increase in taxes shifts the AD curve ________. A) rightward; rightward B) rightward; leftward C) leftward; rightward D) leftward; leftward

Suppose the government of Japan increases its expenditure on goods and services. In the short run, this increase will A) shift the AD curve in Japan rightward. B) shift the AD curve in Japan leftward. C) cause the price level in Japan to fall. D) None of the above answers is correct.

If the government wants to engage in fiscal policy to increase real GDP, it could A) increase government expenditure in order to increase short-run aggregate supply. B) decrease government expenditure in order to increase short-run aggregate supply. C) increase government expenditure in order to increase aggregate demand. D) decrease government expenditure in order to decrease aggregate demand.

If real GDP is less than potential GDP, which of the following fiscal policies would increase real GDP? A) only a decrease in government expenditure B) only an increase in taxes C) an increase in government expenditure and/or a decrease taxes D) a decrease in government expenditure and/or an increase taxes

Using the AD-AS model, an increase in government expenditure A) has no impact on real GDP. B) has no impact on real GDP, but will increase potential GDP. C) increases both real GDP and the price level. D) has a full multiplier effect on real GDP, leaving the price level unchanged in the long run.

Using fiscal policy, to increase real GDP and employment the government could ________ government expenditure on goods and services or ________ taxes. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

When real GDP is less than potential GDP, an increase in government expenditures will ________ real GDP and ________ the price level. A) increase; raise B) increase; lower C) decrease; raise D) decrease; lower

Suppose the economy is at a short-run equilibrium with real GDP greater than potential GDP. Which of the following fiscal policies would decrease real GDP and the price level? A) an increase in government expenditure B) a decrease in taxes C) an increase in taxes D) None of the above answers is correct.

Suppose that the government decreases its expenditures on goods and services. Within the AS-AD model, the result will be ________ in real GDP and ________ in the price level. A) an increase; an increase B) an increase; a decrease C) a decrease; an increase D) a decrease; a decrease

In the above figure, if the economy is initially at point D and government expenditure increases, the economy will A) move to point C. B) move to point A. C) move to point B. D) stay at point D.

In the above figure, if the economy is initially at point B and government expenditure decreases, the economy will A) move to point C. B) move to point A. C) move to point D. D) stay at point B.

In the above figure, if the economy is initially at point D and taxes are cut while potential GDP does not change, then the economy will A) move to point C. B) move to point A. C) move to point B. D) stay at point D.

In the above figure, if the economy is initially at point B and taxes are raised while potential GDP does not change, then the economy will A) move to point C. B) move to point A. C) move to point D. D) stay at point B.

In the above figure, if the economy initially is at point A and government expenditure increases, in the short run the economy will move to point A) B. B) C. C) A, that is, the equilibrium will not change. D) None of the above answers is correct.

The figure above illustrates the aggregate demand, short-run aggregate supply, and long-run aggregate supply in Lotus Land. The economy is currently at point D and the government increases its expenditure on goods and services. The economy will move to ________. The price level will ________, and the change in real GDP will be ________ the increase in aggregate demand. A) point A; fall; less than B) point D; rise; less than C) point C; rise; less than D) point B; remain constant; the same as

The figure above illustrates the aggregate demand, short-run aggregate supply, and long-run aggregate supply in Lotus Land. The economy is currently at point D and the government decreases its taxes. The economy will move to ________. The price level will ________, and the change in real GDP will be ________ the increase in aggregate demand. A) point A; fall; less than B) point D; rise; less than C) point C; rise; less than D) point B; remain constant; the same as

In the above figure, which fiscal policy could help move the economy to potential GDP? A) decreasing government expenditure B) decreasing autonomous taxes C) increasing government expenditure D) Both answers A and B are correct.

In the above figure, which of the following policies could move the economy to potential GDP? A) decreasing government expenditures and increasing taxes B) decreasing taxes and not changing government expenditures C) increasing government expenditures and decreasing taxes D) None of the above answers is correct.

Suppose that real GDP equals potential GDP, but the government believes that the economy is in a below full-employment equilibrium. As a result, the government increases its expenditure on goods and services. In response to the government's fiscal policy A) aggregate demand will increase. B) an equilibrium with real GDP less than potential GDP will occur. C) potential GDP decreases. D) None of the above answers is correct.

The use of fiscal policy is limited because A) there is never a long enough time lag. B) the economy is almost always at full employment. C) the President may have different goals than Congress. D) time lags associated with fiscal policy may cause the policy to take effect too late to solve the problem it was supposed to address.

The use of discretionary fiscal policy to end a recession is limited because A) the legislative process is slow. B) potential GDP changes too rapidly. C) the real-world multiplier is too small to have an impact on real GDP. D) in the real world, taxes are not induced.

Which of the following are limitations of fiscal policy? I. There is a lag between recognizing that fiscal policy might be needed and when it actually takes effect. II. Economic forecasts might be incorrect. III. Monetary policy might counter fiscal policy. A) I only B) I and II C) I and III D) I, II and III

Which of the following policies shifts the AD curve the farthest leftward? A) a rise in taxes of $10 billion B) a cut in taxes of $10 billion C) a decrease in government expenditure of $10 billion D) a decrease in both government expenditure and taxes of $10 billion

If the government's budget is in surplus even when the economy is at full employment, the surplus is said to be A) persisting. B) cyclical. C) discretionary. D) structural.

In 2007, Norway's government had revenue of $226.3 billion and expenditures of $158.7 billion. At the same time, GDP totaled $392 billion and government debt was about 67 percent of GDP. In 2007, Norway's government ran a government budget ________ and government debt ________. A) surplus; decreased B) deficit; decreased C) surplus; increased D) deficit; increased

In 2007, France's government had revenue of $1.287 trillion while expenditures totaled $1.356 trillion. GDP was $2.56 trillion. In 2007, the government budget balance was ________ and government debt ________. A) -$0.69 billion; increased B) $1.27 trillion; increased C) $0.69 billion; decreased D) $1.02 trillion; decreased

In 2007, Denmark's government had expenditures of $157 billion and spending of $171 billion. GDP in 2007 was $312 billion. The government ran a budget ________ and government debt ________. A) deficit; decreased B) deficit; increased C) surplus; decreased D) surplus; increased

) In October 2008, President Bush enacted the Alternative Minimum Tax Relief Act of 2008, which resulted in lower taxes on labor income. According the supply-side view, this would result in A) an increase in the tax wedge. B) a leftward shift in the supply of labor curve. C) a movement along the supply of labor curve. D) a rightward shift in the supply of labor curve.

In October 2008, President Bush enacted the Alternative Minimum Tax Relief Act of 2008, which resulted in lower taxes on labor income. According the supply-side view, as a result of this act the incentive to work ________ and the tax wedge ________. A) decreases; increases B) increases; does not change C) increases; decreases D) increases; increases

In 2007, Germany increased the value added tax (VAT) on consumption from 16 percent to 19 percent. The supply-side view, this will A) increase the tax wedge and lower the incentive to work. B) decrease the tax wedge and lower the incentive to work. C) shift the labor supply curve to the right. D) increase the incentive to work in order to pay the higher tax.

In 2007, Germany increased the value added tax (VAT) on consumption from 16 percent to 19 percent. According to the supply-side view A) the incentive to work increases. B) the supply of labor increases. C) there will be an increase in potential GDP due to the increase tax revenue. D) the after-tax wage rate falls.

In 2008, Britain decided to cut its value added tax (VAT) to 15 percent from 17.5 percent. The VAT is similar to a sales tax. According to the supply-side view, this change will increase I. the after-tax wage. II. the incentive to work. III. the supply of labor. A) II only B) I and II only C) I, II and III D) II and III only

A report on the EU economic stimulus plan suggested that "... Governments must consider ... cutting VAT [value added tax] and labor taxes ..." The VAT is similar to a sales tax. If governments follow the suggestions, there will be ________ according to the supply-side view. A) an increase in labor supply and a decrease in the tax wedge B) an upward shift in the aggregate production function C) an increase in the labor supply and an increase in the tax wedge D) an increase in saving and an increase in the tax wedge

Norway has a lower tax on dividend and interest income than does United Kingdom. We would expect Norway to have a ________ tax wedge and a ________ growth rate of real GDP. A) smaller; slower B) larger; faster C) larger; slower D) smaller; faster

Between 2000 and 2005, Finland increased its tax on interest income. As a result, the supply curve for loanable funds shifted ________ and the tax wedge ________. A) leftward; increased B) rightward; increased C) leftward; decreased D) rightward; decreased

Between 2000 and 2005, Finland increased its tax on interest income. As a result, the tax wedge ________ and the growth rate of real GDP ________. A) decreased; slowed B) increased; slowed C) decreased; increased D) increased; increased

Unemployment benefits are considered part of ________ fiscal policy. The extension of benefits would ________ fiscal policy. A) automatic; be discretionary B) discretionary; be automatic C) automatic; also be considered automatic D) discretionary; also be considered discretionary

The stimulus plan is considered A) automatic fiscal policy. B) contractionary fiscal policy. C) discretionary fiscal policy. D) needs-tested spending.

Which of the following describe the EU's plan? I. It is discretionary fiscal policy II. It will generate a cyclical surplus. A) I and II B) II only C) I only D) neither I nor II

New Zealand's government expects the policies to shift the ________ but at this point in time the ________ might weaken its ability to affect real GDP. A) AD curve rightward; recognition lag B) LAS curve leftward; impact lag C) SAS curve rightward; law-making lag D) AD curve rightward; impact lag

The plan is expected to A) shift the AD curve rightward and increase real GDP. B) shift the AD curve leftward and decrease the recessionary gap. C) decrease the recessionary gap and decrease the price level. D) use the autonomous tax multiplier to eliminate the inflationary gap.

Obama's possible decision to delay the tax increase recognizes the fact that a tax increase will ________ disposable income and ________ real GDP. A) decrease; increase B) decrease; decrease C) increase; increase D) increase; decrease