Exam 10: Fiscal Policy

Consumers often base their spending on their estimated permanent income.

Does the term "mandatory spending" mean that spending must go on forever?

Recall the Application about the relationship between tax rates and tax revenues which was proposed by Yu Juo, one of the twelve wise men who succeeded Confucius in ancient China, to answer the following question(s). -According to this Application, Yu Juo proposed that the Chinese government should ________ the tax rate in the case of a famine if the government had insufficient funds, and this would ________ the standard of living.

Name two actions a government could take if it wants to implement a contractionary fiscal policy.

During a recession, tax revenues ________ while government transfer payments ________, thereby mitigating part of the adverse effects of a recession and stabilizing the economy.

Social insurance taxes are paid by corporations based on their profits.

Explain how an increased federal budget deficit resulting from a recession can actually help stabilize an economy.

Temporary tax cuts tend to stimulate consumer spending at the same rate as permanent tax cuts.

A decrease in the personal income tax rate ________ disposable income which ________ consumption.

The share of corporate tax in total federal revenues

Suppose initially the federal budget is balanced. The economy then enters a period of expansion. What is likely to happen to the federal budget?

Describe the three broad categories of the U.S. budget.

Automatic stabilizers