Exam 26: Fiscal Policy

The stimulus package of 2009 is a good example of a countercyclical fiscal policy, a $789 billion package of government spending increases and tax cuts that aims to help the U.S. economy recover from a deep recession by increasing real GDP and moving the economy closer to potential output.

Social security is the biggest spending item in the U.S. 2017 federal budget, followed by defense.

The federal deficit is the total amount of outstanding loans that the U.S. federal government owes.

Which of the following types of taxes are not used by the federal government to raise revenue?

At any one time, there can be discussions in Congress about only one year's budget.

The Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) of 2003 accelerated the tax cuts introduced in the 2001 plan, increased tax rates on capital gains and dividends, and introduced a child tax credit for parents.

Most government expenditures are for purchases of new goods and services.

Which of the following is the largest component of federal government expenditures?

Answer the questions below:

In using countercyclical policy during a recession, the government faces a tradeoff between reducing unemployment now and reducing inflation in the long run. Please explain.

Increasing government purchases can contribute to higher inflation.

Suppose that the economy is in a recession as a result of a fall in investment spending and real GDP is below potential GDP.

If real GDP equals B in the figure below, then

The whole budget cycle takes

For a hypothetical economy in 2010, the deficit was $300 billion, the national debt was $3,800 billion, and the average interest rate on the federal debt was 6.0 percent. The amount of interest payments made that year was

The debt to GDP ratio grows every time there is a deficit.

Why is there an inverse relationship between real GDP and the budget deficit?

Suppose the economy is initially in equilibrium at point A in the figure below. A decrease in investment expenditures causes the AD curve to shift back to AD₂. Under these circumstances, which of the following statements is true?

The U.S. federal budget is a

Which of the following is true?