Exam 11: Fiscal Policy and the Federal Budget

If a person predicts that a cut in income tax rates will decrease income tax revenues,he or she implicitly assumes that the percentage __________ in the tax base will be __________ the percentage cut in the tax rate.

The transmission lag is the time between

When a decrease in one or more components of private spending completely offsets an increase in government spending,there is

Exhibit 11-1 -Refer to Exhibit 11-1.The economy is currently at point 1.In this situation,Keynesian economists would most likely propose

There is zero crowding out and the federal budget is balanced at the time government purchases are increased.It follows that the __________ curve shifts to the __________,and in the short run both the price level and Real GDP __________.

Keynesians believe

To eliminate a recessionary gap,Keynesian theory indicates that government should

Between the data lag and the legislative lag falls the __________ lag.

Suppose that income tax revenues are maximized at an average (income)tax rate of 45 percent.If the Laffer curve is a correct diagrammatic representation of the relationship between tax rates and tax revenue,it follows that a tax rate of

Define crowding out.Give a hypothetical numerical example to show the difference between complete crowding out and incomplete crowding out.Explain how complete and incomplete crowding out could impact the effectiveness of fiscal policy.

If the structural deficit is $750 billion and the cyclical deficit is $150 billion,it follows that the __________ is __________ billion.

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

The United States currently has a progressive income tax structure.

The deficit that exists when the economy operates at full employment 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.

The top 1% of income earners in the U.S.(those with the highest taxable incomes)pay

The Laffer curve illustrates that

Define the term budget deficit (as it applies to the federal government)and describe the difference between a cyclical deficit and a structural deficit.Provide a hypothetical numerical example to help support your answer.

A budget deficit

With a progressive income tax,as taxable income rises (up to a certain point),one's tax rate rises.