Quiz #7 Review

Question 1

automatic stabilizers

Answer 1

government spending and taxes that automatically increase or decrease with the business cycle

Question 2

when times are good, tax revenues ___________

Answer 2

INCREASE

Question 3

when times are bad, tax revenue __________

Answer 3

decreases

Question 4

when times are bad, government spends more on _____________

Answer 4

unemployment

Question 5

XX% of government funds go to transfer payments (social security, unemployment, Medicare, Medicaid)

Answer 5

43%

Question 6

XX% of government spending goes to defense

Answer 6

20%

Question 7

XX% of government spending goes to interest on debt

Answer 7

8%

Question 8

XX% of government spending goes to grants to local/state governments

Answer 8

15%

Question 9

XX% of government spending goes to various other departments of government

Answer 9

14%

Question 10

In 2012, the federal deficit was…

Answer 10

$1.1 trillion

Question 11

can a budget deficit one year be the result of a policy put into place a previous year?

Answer 11

YES, we have deficits from the wars in Iraq and Afghanistan

Question 12

the federal deficit has gone (up/down) the past few years

Answer 12

DOWN

Question 13

Current national debt:

Answer 13

$16.7 trillion

Question 14

what portion of the debt does the feds owe to other parts of the federal government?

Answer 14

$4.8 trillion

Question 15

portion of debt that the fed owes to people like you and I

Answer 15

$3.8 trillion

Question 16

portion of debt the federal government owes to outer countries

Answer 16

$5.4 trillion

Question 17

portion of debt the federal government owes the Federal Reserve

Answer 17

$1.9 trillion

Question 18

portion of debt the federal government owes to local and state government

Answer 18

$0.7 trillion

Question 19

America’s current Debt to GDP ratio

Answer 19

105%

Question 20

how many surpluses has the government had in the last forty years?

Answer 20

4 surpluses

Question 21

how do we reduce the debt-to-GDP ratio?

Answer 21

the government’s GDP must grow at a faster rate than the debt does, dummy!

Question 22

when the government runs a deficit, both savings and investments ___________

Answer 22

decline

Question 23

what is on the X and Y axis for the curves regarding market for loanable funds?

Answer 23

x: quantity of loanable funds
y: interest rate

Question 24

crowding out

Answer 24

a decline in private expenditures as a result of an increase in government purchases

Question 25

how big of a problem is the debt/deficit? 3 things to know (according to Dr. Staihr)

Answer 25

1. interest we pay is money that cant be used for something else. 2. deficits can raise interest rates, but this doesn't seem to be happening 3. higher interest rates can crowd out private investment (doesn't seem to be happening)

Question 26

American Recovery and Reinvestment Act:

Answer 26

a stimulus bill by the Obama Administration that's purpose was to move AD to the right - it is both government spending and tax reductions - $825 billion in government spending and tax adjustments

Question 27

how much of the American Recovery and Reinvestment Act was in the form of government spending?

Answer 27

63%

Question 28

how much of the American Recovery and Reinvestment Act was in the form of tax adjustments?

Answer 28

37%

Question 29

At a minimum, how much did the American Recovery and Reinvestment Act boost GDP? maximum?

Answer 29

3% minimum, 9.2% maximum

Question 30

tax multiplier formula

Answer 30

tax multiplier = changes in real GDP / changes in taxes

Question 31

tax multiplier formula 2

Answer 31

MPC / (1 - MPC)

Question 32

how could the multiplier be less than 1?

Answer 32

CROWDING OUT: the claim that governmetn spending reduces private spending -this is dependent on interest rates going up

Question 33

expansionary fiscal policy | -what is it used for?

Answer 33

involves increasing government purchases or decreasing taxes to increase AD -used to fight way out of recession

Question 34

contractionary financial policy

Answer 34

decreasing government spending or raising taxes to decrease AD -fights rising inflation

Question 35

If the tax multipler is -1.6, a $100 billion cut in taxes would do what?

Answer 35

we would expect to see an increase in GDP of $160 billion

Question 36

budget deficit

Answer 36

the situation in which the government's expenditures are greater than its tax revenue

Question 37

budget surplus

Answer 37

the situation in which the government's expenditures are less than its tax revenue

Question 38

cyclically adjusted budget deficit or surplus

Answer 38

the deficit or surplus in the federal government budget if the economy were at potential GDP