Quiz #7 Review Flashcards
automatic stabilizers
government spending and taxes that automatically increase or decrease with the business cycle
when times are good, tax revenues ___________
INCREASE
when times are bad, tax revenue __________
decreases
when times are bad, government spends more on _____________
unemployment
XX% of government funds go to transfer payments (social security, unemployment, Medicare, Medicaid)
43%
XX% of government spending goes to defense
20%
XX% of government spending goes to interest on debt
8%
XX% of government spending goes to grants to local/state governments
15%
XX% of government spending goes to various other departments of government
14%
In 2012, the federal deficit was…
$1.1 trillion
can a budget deficit one year be the result of a policy put into place a previous year?
YES, we have deficits from the wars in Iraq and Afghanistan
the federal deficit has gone (up/down) the past few years
DOWN
Current national debt:
$16.7 trillion
what portion of the debt does the feds owe to other parts of the federal government?
$4.8 trillion
portion of debt that the fed owes to people like you and I
$3.8 trillion
portion of debt the federal government owes to outer countries
$5.4 trillion
portion of debt the federal government owes the Federal Reserve
$1.9 trillion
portion of debt the federal government owes to local and state government
$0.7 trillion
America’s current Debt to GDP ratio
105%
how many surpluses has the government had in the last forty years?
4 surpluses
how do we reduce the debt-to-GDP ratio?
the government’s GDP must grow at a faster rate than the debt does, dummy!
when the government runs a deficit, both savings and investments ___________
decline
what is on the X and Y axis for the curves regarding market for loanable funds?
x: quantity of loanable funds
y: interest rate
crowding out
a decline in private expenditures as a result of an increase in government purchases
how big of a problem is the debt/deficit? 3 things to know (according to Dr. Staihr)
- interest we pay is money that cant be used for something else.
- deficits can raise interest rates, but this doesn’t seem to be happening
- higher interest rates can crowd out private investment (doesn’t seem to be happening)
American Recovery and Reinvestment Act:
a stimulus bill by the Obama Administration that’s purpose was to move AD to the right
- it is both government spending and tax reductions
- $825 billion in government spending and tax adjustments
how much of the American Recovery and Reinvestment Act was in the form of government spending?
63%
how much of the American Recovery and Reinvestment Act was in the form of tax adjustments?
37%
At a minimum, how much did the American Recovery and Reinvestment Act boost GDP? maximum?
3% minimum, 9.2% maximum
tax multiplier formula
tax multiplier = changes in real GDP / changes in taxes
tax multiplier formula 2
MPC / (1 - MPC)
how could the multiplier be less than 1?
CROWDING OUT: the claim that governmetn spending reduces private spending
-this is dependent on interest rates going up
expansionary fiscal policy
-what is it used for?
involves increasing government purchases or decreasing taxes to increase AD
-used to fight way out of recession
contractionary financial policy
decreasing government spending or raising taxes to decrease AD
-fights rising inflation
If the tax multipler is -1.6, a $100 billion cut in taxes would do what?
we would expect to see an increase in GDP of $160 billion
budget deficit
the situation in which the government’s expenditures are greater than its tax revenue
budget surplus
the situation in which the government’s expenditures are less than its tax revenue
cyclically adjusted budget deficit or surplus
the deficit or surplus in the federal government budget if the economy were at potential GDP