Chapter 30

Question 1

FISCAL POLICY

Answer 1

changes in government spending and tax collections designed to achieve a full employment and noninflationary domestic output

Question 2

BUDGET DEFICIT

Answer 2

amount by which the expenditures of federal government exceed its revenues in any year

Question 3

CONTRACTIONARY FISCAL POLICY

Answer 3

decrease in government purchases of goods and services, an increase in net taxes, or some combination of the two, for the purpose of decreasing aggregate demand and thus controlling inflation

Question 4

BUDGET SURPLUS

Answer 4

amount by which the revenues of the federal government exceed its expenditures in any year

Question 5

BUILT IN STABILIZER

Answer 5

mechanism that increases the government’s budget deficit during a recession an increases government’s budget surplus during an expansion without any action by policymakers

Question 6

PROGRESSIVE TAX SYSTEM

Answer 6

tax whose average tax rate increases as the taxpayer’s income increases and decreases as the taxpayer’s income decrease

Question 7

PROPORTIONAL TAX SYSTEM

Answer 7

tax whose average tax rate remains constant as the taxpayer’s income increases or decreases

Question 8

REGRESSIVE TAX SYSTEM

Answer 8

tax whose average tax rate decreases as the taxpayer’s income increases and increases as the taxpayer’s income decreases

Question 9

CYCLICALLY ADJUSTED BUDGET

Answer 9

shows what part is caused by policy and what part is caused by economy

Question 10

Timing problems with fiscal policy

Answer 10

Recognition lag

Administrative lag

Operational lag

Question 11

POLITICAL BUSINESS CYCLE

Answer 11

fluctuations in the economy caused by the alleged tendency of congress to destabilize the economy by reducing taxes and increasing government expenditures before elections and to raise taxes and lower expenditures after elections

Question 12

CROWDING-OUT EFFECT

Answer 12

rise in interest rates and a resulting decrease in planned investment caused by the federal government’s increased borrowing to finance budget deficits and refinance debt

Question 13

PUBLIC DEBT

Answer 13

total amount owed by the federal government to the owners of government securities; equal to the sum of past government budget deficits less government budget surplus

Question 14

EXTERNAL PUBLIC DEBT

Answer 14

portion of the public debt owed to foreign citizens, firms, and institutions

Question 15

BANKRUPTCY

Answer 15

legal situation in which an individual or firm finds that it cannot make timely interest payments on money it has borrowed

Question 16

INCOME REDISTRIBUTION BY DEBT

Answer 16

government may wish to impose progressive taxes as a way to redistribute income