Exam 12: Government and Fiscal Policy

Which of the following statements is true about the U.S. national debt? I. Relative to the level of economic activity, the debt is well below the levels reached during World War II. II. The ratio of debt to GDP rose from 1981 to 1996 and fell in the last years of the twentieth century; it began rising again in 2002. III. Judged by international standards, the U.S. national debt relative to its GDP is above average among developed nations.

Figure 12-2 -Refer to Figure 12-2. If discretionary fiscal policy is used to eliminate the gap, policy actions Jwill

Public investment expenditure for highways, schools, and national defense is included in which component of GDP?

Fiscal policy has a short implementation lag compared to monetary policy.

If the federal budget is initially balanced and government expenditures remain constant, then an Jincrease in GDP will _________ tax revenues and create a budget _________.

In general, personal income taxes

Contractionary fiscal policy will lead to a(n)

Figure 12-2 -Refer to Figure 12-2. Suppose real GDP is equal to Y_r. If policymakers want to close the output gap with demand management policies, what should they do?

Figure 12-3 -Refer to Figure 12-3. If the aggregate demand curve is AD₀, which of the following is the most Jappropriate discretionary fiscal policy to pursue?

Figure 12-4 -Refer to Figure 12-4. Assume that the economy is initially at Y₁. If economists advocate Jpolicies to promote economic growth, such as those which encourage investment and work effort, which of the following would occur?

Generational accounting

If the level of government expenditures is given, budget surpluses and deficits depend on tax Jrevenues, which tend to vary directly with GDP.

The three major categories of government spending are

During a recession, rising transfer payments and falling tax collections I. help cushion households from the impact of the recession. II. buffers the fall in real GDP (relative to a situation where transfer payments do not rise and tax revenues do not fall). III. tend to increase a budget deficit or reduce a budget surplus.

A contractionary fiscal policy is likely to

An expansionary fiscal policy is likely to

Crowding out occurs when expansionary fiscal policy leads to

Transfer payments typically

Automatic stabilizers tend to exaggerate the severity of business cycles.

Suppose a country's debt rises by 6% and its GDP rises by 5%. What happens to the debt-GDP ratio?