Exam 11: Fiscal Policy and the Federal Budget

Tax revenues can be found by

Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $500 million. This is an example of

Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $700 million. This is an example of

Which of the following is an example of automatic fiscal policy?

Supply-side economists believe reductions in tax rates can

Suppose the economy is in a recessionary gap. If government expenditures are currently $3.5 trillion and tax revenues are currently $2.9 trillion, the (total) budget deficit is _____________. Assume that economists estimate that if the economy were operating at full employment, government expenditures would be $3.2 trillion and tax revenues would be $3.1 trillion. The structural deficit must be_________________ and the cyclical deficit must be _______________.

Both Jones and Smith agree that the economy is in a recessionary gap. Jones proposes a tax cut and believes that it will raise Real GDP and lower the price level. Smith agrees that a tax cut will raise Real GDP, but he argues that it will not lower the price level in the short run. It follows that

If Smith believes the economy is self-regulating, then Smith

Increased government spending and tax cuts characterize

Exhibit 11-5 Assume that the farmer grows wheat and sells it to the miller, the miller turns the wheat into flour and sells it to the baker, and the baker turns the flour into bread and sells it to the final consumer. -Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT). If the government imposes a VAT rate of 10 percent, the government will receive ___________ in VAT revenue per loaf of bread sold and the final consumer will find that he has to pay _______________ more for a loaf of bread than he did prior to the VAT tax.

According to information provided in the textbook, the federal government could easily eliminate budget deficits by raising taxes on millionaires.

The transmission lag is the period that elapses between the time fiscal policy is enacted and the time it is put into effect.

The economy is in a recessionary gap. There is no crowding out and government has correctly estimated that to bring the economy into long-run equilibrium it should raise government purchases by $123 billion. If government purchases are raised by $123 billion, does it follow that the economy will be moved into long-run equilibrium?

An example of contractionary fiscal policy is

The unique feature of a progressive income tax is that the higher one's income (up to some point), the __________ one pays.

Which of the following is not an example of a "lag" that diminishes the potential impact of the use of fiscal policy?

To eliminate an inflationary gap, Keynesian theory indicates that government should

Exhibit 11-2 -Refer to Exhibit 11-2. At point B, if we cut tax rates slightly, tax revenues will

That part of the deficit that results from a downturn in economic activity is called the __________ deficit.

List and describe three of the five different lags that can occur which may impede the effectiveness of the use of fiscal policy.