Exam 11: Fiscal Policy

The U.S. government deficit as a percentage of GDP was much larger during World War II than it was in the 1980s and 1990s.

Assume an economy has automatic stabilizers in place that include a progressive tax structure and a transfer payment system. Then in a period of high economic growth and high inflation, we would expect:

Under a _____ structure, the marginal income tax rate rises and the average tax rate decreases as personal income falls.

A drop in consumption or investment spending caused by increased government spending is referred to as:

The _____ is the difference between potential real GDP and the equilibrium level of real GDP.

If consumers spend _____ of a change in their disposable income, then a tax increase of $100 would lower consumption by $70.

Suppose the marginal tax rate is 37 percent for an income level of $50,000 and 39 percent for an $80,000 income. This implies that the underlying tax structure is _____ in nature.

Which of the following does not qualify as an automatic stabilizer in the economy?

The emphasis on the greater incentives to produce created by lower taxes has come to be known as:

Empirical evidence suggests that the United States ran close to a balanced budget during the World War II.

Which of the following statements is true of government spending?

Which of the following is not a means of financing government spending?

Which of the following statements about taxation is incorrect?

The figure given below depicts the tax revenue for different tax rates applied by the government. Figure 11.2 -Refer to Figure 11.2. If the tax rate were 100 percent:

Starting with a situation where there is a substantial budget deficit, when tax revenues grow faster than federal expenditures, the government will experience:

_____ are elements of fiscal policy that automatically change in value as national income changes.

Ceteris paribus, the greater the foreign holdings of the U.S. treasury securities:

Which of the following is true of U.S. national debt between 1958 and 2010?

Fiscal policy is most effective in controlling inflation when the economy operates in the _____ region of the aggregate supply curve.

The figure given below depicts the macroeconomic equilibrium in a country. Figure 11.3 -Refer to Figure 11.3. Assume that the increase in aggregate demand from AD₁ to AD₂ was the result of government spending that was financed by borrowing. Assuming that the Ricardian equivalence holds and people expect taxes to rise in future, the equilibrium income will be: