Chapter 13: Fiscal Policy, Deficits, and Debt

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19 terms · Macroeconomics Chapter 13

Fiscal Policy is:

Discretionary. Meaning, it is at the option of the Federal government.

When recession occurs, a:

expansionary fiscal policy may be in order.

Expansionary fiscal policy consists of:

government spending increases, tax reductions, or both, designed to increase aggregate demand and therefore raise real GDP.

When demand-pull inflation occurs:

a restrictive or contracionary fiscal policy may help control it.

Contractionary fiscal policy consists of:

government spending reductions, tax increases, or both, designed to decrease aggregate demand and therefore lower or eliminate inflation.

Net tax revenues vary directly with:

GDP

A built-in stabilizer is:

anything that increases the government's budget deficit (or reduces its budget surplus) during a recession and increases its budget surplus (or reduces its budget deficit) during an expansion without requiring explicit action by policymakers.

Progressive tax system:

the average tax rate rises with GDP.

Proportional tax system:

the average tax rate remains constant as GDP rises.

Regressive tax system:

the average tax rate falls as GDP rises.

Cyclically adjusted budget measures:

what the Federal budget deficit or surplus would have been under existing tax rates and government spending levels if the economy had achieved its full employment level of GDP. To compare actual government expenditures with revenues that would have occurred.

The public debt is:

the accumulation of all past Federal deficits and surpluses.

U.S. Securities are:

financial instruments issued by the federal government to borrow money to finance expenditures that exceed tax revenues.

There are four types of U.S. Securities:

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

If you are told that the government had an actual budget deficit of $50 billion, then you would:
Answer

know that fiscal policy was expansionary.

know that fiscal policy was contractionary.

know that fiscal policy was producing a cyclical deficit.

not be able to determine the direction of fiscal policy from the information given.

not be able to determine the direction of fiscal policy from the information given.

When changes to taxes and spending occur in the economy without explicit action by the federal government, such policy is:
Answer

cyclical.

variable.

discretionary.

nondiscretionary.

nondiscretionary.

Which is an important problem associated with the public debt?
Answer

Payments of interest on the debt lead to greater income equality.

Interest payments on the debt tend to improve economic incentives to work and produce more unemployment.

Government borrowing to finance the debt may increase the level of private investment.

Payment of interest on the debt held by foreigners transfers real resources abroad.

Payment of interest on the debt held by foreigners transfers real resources abroad.

If monies added to, or subtracted from, the Social Security trust fund were excluded from federal budget calculations, the current federal budget:
Answer

deficit would nearly disappear.

deficit would be substantially larger.

surplus would nearly disappear.

surplus would be substantially smaller.

deficit would be substantially larger.

The public debt is held as:
Answer

U.S. securities, corporate bonds, and common stock.

Federal Reserve Notes.

U.S. gold certificates.

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

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

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