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| What affects aggregate demand indirectly? |
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| Taxes affect the level of aggregate demand primarily through changing the level of _________, which alters ___________. |
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| disposable income; consumption |
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| A(n) __________ in government spending or a(n) ___________ in taxes lowers the level of expenditures at every price and shirts the aggregate demand curve to the ___________. |
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| Assuming no effects on aggregate supply, if the government decreases governemnt spending and increases taxes in an attempt to reduce the federal government budget deficit, aggregate demand will shift to the ___________, the price level will either remain constant or ____________, and the level of national income will ____________. |
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A decrease in taxes may cause aggregate supply to shirt to the _________, causeing the level of prices to ___________ and the level of national income to ___________. |
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| Government spending financed by ___________ will have a greater expansionary effect than government spending financed by ___________ if the public ___________ base current spending on future tax liablities. |
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Definition
| borrowing; taxes; does not |
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Term
| Increases in government spending financed by _____________ may drive _____________ interest rates and decrease _____________. |
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Definition
| borrowing; up; investment |
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Term
| Expansionary fiscal policy refers to |
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Definition
| increasing government spending and decreasing taxes |
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Term
| An increase in government spending |
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Definition
| shifts aggregate demand to the right |
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Term
| If the aggregate supply curve slopes up before reaching potential real GDP, |
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Definition
| the governmnet must increase its spending by more than the recessionary gap to real potential real GDP |
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Term
Which is true? a. If the price level rises as real GDP rises, the muliplier effects of any given change in aggregate expenditures are larger than they would be if the price level remained constant. b. Spending and tax multipliers overestimate the change in expenditures needed to close a recessionary gap. c. If aggregate supply chift in response to an increase in government spending financed by an increase in taxes, the effects of government spending may be enhanced. d. David Ricardo stated that the effects of a deficit financed by an increase in taxes are different from the effects of a deficit financed by borrowing. e. The spending multiplier overestimates the expansionary effect of an increase in government spending unless the economy is in the Keynesian region of short-run aggregate supply. |
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Definition
| The spending multiplier overestimates the expansionary effect of an increase in government spending unless the edonomy is in the Keynesian region of short-run aggregate supply. |
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Term
| Suppose the equilibrium level of income is below the full employment level of income. The economy is in a recession, and the Wall Street Journal reports fears of deflation. Hence, the government decides to implement a policy that will act to increase national output and prices. This can be accomplished by |
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Definition
| increasing government spending such that aggregate demand is increased. |
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Term
| Discretionary fiscal policy refers to |
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Definition
| changes in government spending and taxation aimed at achieveing an economic policy goal |
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Term
| What is not a harmful effect of government deficits? |
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Definition
| increased investment caused by foreign savings placed in U.S. bonds |
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Term
| What are examples of automatic stabilizers? |
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Definition
| unemployment insurance, progressive taxes, food stamps, and welfare benefits |
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Term
| ____________ is not an automatic stabilizer |
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Definition
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Term
The follow tax table represents a ______________ tax schedule. income tax payment $100 $45 200 80 300 105 400 120 |
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Which of the following is not an expected result of government budget deficits? a. increases in savings b. increases in imports c. decreases in investment d. increases in consumption e. decreases in exports |
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To maintain a given equilibrium, which of the following would not offset a decrease in the federal deficit? a. a decrease in consumption b. an increase in investment c. a decrease in savings d. a decrease in imports e. an incrase in exports |
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Definition
| a decrease in consumption |
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True or false? Historically, government spending has played an increasingly larger role over time in industrial countries. |
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True or False? Government plays a larger role in investment spending in developing countries. |
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True or False? Developed countries rely more on their governments to provide the infrastructure of the economy than do developing countries. |
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True or False? State-owned enterprises account for a larger percentage of economic activity in developing countries than in developed countries. |
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True or False? Industrial nations spend a larger percentage of their budgets on social programs than do developing countries |
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True or False? Developing countries rely more heavily on direct taxes than do developed countries |
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True or False? Developing countries rely more heavily on indirect taxes than do developed countries |
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True or False? Developing countries rely more heavily on personal income taxes than do developed countries |
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True or False? Developing countries rely more heavily on social security taxes than do developed countries |
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True or False? Developed countries rely more heavily on import and export taxes than do developing countries |
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