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Chapter 12 quiz

Terms in this set (15)

Which of the following is an example of an automatic stabilizer?


The increase in government spending that occurs as the result of new spending bills passed by Congress

The reduction in the money supply that occurs as banks become less willing to make loans during a recession

The rise in tax revenue that occurs as a result of growth in real GDP

The reduction in real wages that occurs as the economy goes into a recession
The rise in tax revenue that occurs as a result of growth in real GDP
Federal budget deficits


rarely occurred prior to the Reagan Administration.

are always undesirable.

stimulate investment spending by businesses.

help stabilize the economy during recessions and depressions.

depress interest rates.
help stabilize the economy during recessions and depressions.
If G = $800 billion, tax receipts = $850 billion, and there is an inflationary gap of $100 billion, there is


not enough information to determine whether there is a budget surplus or a budget deficit.

a budget deficit.

a budget surplus.
a budget surplus
A budget deficit is the


excess of tax revenues over expenditures.

shortfall of Social Security collections toward payment of benefits.

annual excess of government spending over revenue raised by taxes, fees, and charges.

amount by which tax revenues and borrowed funds fall short of government expenditures.
annual excess of government spending over revenue raised by taxes, fees, and charges.
Other things being equal a recession is likely to


increase federal outlays and reduce federal receipts.

decrease both federal outlays and receipts.

have no effect on federal receipts or outlays.

increase federal outlays but have no effect on federal receipts.
increase federal outlays and reduce federal receipts
The "crowding-out" debate refers to the disagreement between Keynesians and conservative economists about whether


government contracts with suppliers of military weapons results in unfair competition with non-defense related industries.

spending for national defense causes reductions in the spending for social welfare.

restrictive monetary policy makes expansionary fiscal policy ineffective.

increased government borrowing has an adverse effect on private investment spending.
increased government borrowing has an adverse effect on private investment spending.
A list of automatic stabilizers in the United States economy would NOT include


defense spending.

income taxes.

unemployment compensation.

agricultural support payments.
defense spending
Which statement is true about automatic stabilizers?


They have eliminated the business cycle.

None of the statements are true of automatic stabilizers.

They have been completely ineffective.

They have helped smooth out the business cycle
they have helped smooth out the business cycle
Which one of the following would be an effective fiscal policy in raising national income and reducing unemployment?


an increase in net taxes

A reduction in income taxes

cutting back on unemployment benefits

a decrease in government expenditures
a reduction in income
Which of the following statements best describes the "jobless recovery" after the Great Recession.


during the recession the business began importing most of the products they sell.

output cannot begin rising due to the lack of available labor.

new technology is replacing most of the jobs in the economy.

output begins rising without reducing the unemployment rate.
output begins rising without reducing the unemployment rate
During the Great Recession the fiscal policy measures taken to exit the recession was


raise taxes and run budget deficits.

lower taxes and run budget deficits.

lower taxes and run budget surpluses.

raise taxes and run budget surpluses.
lower taxes and run budget deficits
The "crowding-out effect" suggests that


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

consumer and investment spending always vary inversely.

tax increases are paid primarily out of saving and therefore are not an effective fiscal device.

it is very difficult to have excessive aggregate spending in our economy.
increases in government spending financed through borrowing will increase the interest rate and reduce private investment.
The fair or flat tax suggested to make the income tax system more fair to the citizens would result in


increasing the impact of automatic stabilizers.

generate a larger revenue to the federal government and decrease deficits.

decreasing the impact of automatic stabilizers.

not affect the effectiveness of automatic stabilizers.
decreasing the impact of automatic stabilizers
When the government borrows from the public, the result is


an increase in the demand for loanable funds.

an increase in real GDP.

a decrease in unemployment.

downward pressure on interest rates.
an increase in the demand for loanable funds
If the economy is expecting a severe recession, which fiscal policy would you recommend?


Reduce spending for welfare programs.

Reduce overall government spending.

Increase taxes to reduce consumption.

Reduce personal and corporate income taxes
reduce personal and corporate income taxes
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