Question 1

The difference between automatic fiscal policy and discretionary fiscal policy is that

Accepted Answer

Automatic fiscal policy refers to changes in government spending and taxation that occur without any deliberate action from policymakers, such as automatic stabilizers. Discretionary fiscal policy, on the other hand, refers to deliberate changes in government spending and taxation that are initiated by policymakers through the legislative process. Therefore, Congress must pass laws implementing discretionary fiscal policy.

Question 2

A discretionary fiscal policy is a fiscal policy that

Accepted Answer

Discretionary fiscal policy requires deliberate action by the government, such as legislative changes by Congress, to alter government spending or taxation policies in response to economic conditions.

Question 3

A fiscal action that is triggered by the state of the economy is called

Accepted Answer

Automatic fiscal policy is triggered automatically by changes in the state of the economy, such as changes in GDP or unemployment rates. This is in contrast to discretionary fiscal policy, which is implemented through deliberate actions taken by the government. The other answer choices are not accurate descriptions of this type of fiscal policy.

Question 4

A fiscal action that is initiated by an act of Congress is called

Accepted Answer

Discretionary fiscal policy refers to deliberate changes in government spending or taxation by the Congress with the aim of stabilizing the economy. It is initiated by an act of Congress, implying that lawmakers have the discretion to decide when, how, and on which fiscal measures to use. The government expenditure multiplier refers to the change in the aggregate demand that results from a change in government spending. Automatic fiscal policy involves changes in government spending or taxation that occur automatically in response to changes in the economy, without the need for Congress to pass new laws. Generational fiscal policy refers to the distributional effects of fiscal policies on different generations.

Question 5

The largest component of the fiscal imbalance is

Accepted Answer

Medicare is often cited as the largest component of the fiscal imbalance due to its rapidly increasing costs driven by an aging population and rising healthcare expenses.

Question 6

When the economy is hit by spending fluctuations,the government can try to minimize the effects by

Accepted Answer

The government can try to minimize the effects of spending fluctuations by changing its expenditures on goods and services, as well as by changing taxes. By increasing or decreasing government expenditures, the government can inject or withdraw money from the economy, which can have an impact on overall spending. By changing taxes, the government can either increase or decrease disposable income, which can also affect spending. Therefore, all of the above options (A, B, and C) are valid ways that the government can try to minimize the effects of spending fluctuations on the economy.

Question 7

The stimulus package passed by Congress in 2009 is an example of

Accepted Answer

The stimulus package passed by Congress in 2009 is an example of discretionary fiscal policy. This is because Congress made a conscious decision to pass legislation aimed at stimulating the economy through increased government spending and tax cuts. Automatic fiscal policy refers to changes in government spending or taxation that are triggered automatically in response to changes in the economy, which was not the case with the 2009 stimulus package. Monetary policy refers to actions taken by the Federal Reserve to manipulate the money supply and interest rates, and increased taxation was not the primary focus of the stimulus package.

Question 8

Beginning in 2013,Americans will pay an additional Medicare tax of 0.9 percent on all wage income that exceeds $200,000.By increasing the amount the current generation pays for Medicare,this tax ________ the generational imbalance.

Accepted Answer

The answer of Beginning in 2013,Americans will pay an additional...

Question 9

Deliberate changes in government expenditures and taxes to influence GDP

Accepted Answer

Deliberate changes in government expenditures and taxes to influence GDP are discretionary fiscal policy. This means that they are not automatic responses, but rather deliberate choices made by policymakers. There are also time lags involved in enacting these policies, as they must first be proposed, debated, and passed by government officials.

Question 10

In order for the United States to repay its international debt,the United States would need to

Accepted Answer

In order for the United States to repay its international debt, it would need to generate a surplus of exports over imports, which would increase its current account and improve its balance of payments. This would mean that more money is flowing into the country than flowing out, allowing for the repayment of debt. Cutting taxes or having a current account deficit would not necessarily address the issue of international debt repayment.

Question 11

For the years 2011 and 2012,the Social Security payroll tax was reduced by 2 percentage points.This reduction ________ the fiscal imbalance.

Accepted Answer

The reduction in the Social Security payroll tax decreased the revenue collected, thereby increasing the fiscal imbalance, as it widened the gap between government spending and revenue.

Question 12

In January 2013 the Chinese government held approximately $1 trillion U.S.government debt.The Chinese government accumulated such a large amount of U.S.government debt because for the past decade the United States

Accepted Answer

The Chinese government accumulated a large amount of U.S. government debt because the United States has imported more from China than it has exported to China. This has resulted in a surplus of U.S. dollars in China, which has been used to purchase U.S. government debt.

Question 13

Taxes and government expenditures that,without need for additional government action,change in response to changes in the level of economic activity are examples of

Accepted Answer

Automatic fiscal policy refers to the taxes and government expenditures that automatically adjust in response to changes in the level of economic activity, without the need for additional government action. This helps to stabilize the economy by providing a built-in stabilizer that responds to economic fluctuations without the delays and uncertainties associated with discretionary fiscal policy.

Question 14

Generational accounting shows that the present value of the government's commitments to pay benefits are ________ the present value of its taxes.

Accepted Answer

Generational accounting studies have consistently shown that the present value of future government expenses—primarily Social Security and Medicare entitlements—is much greater than the present value of future government revenues. This means that the government has made promises to future generations that it cannot fully finance with current tax policies.

Question 15

An increase in the tax rates as a result of a new tax law passed by Congress is an example of ________.

Accepted Answer

Discretionary fiscal policy refers to deliberate changes in government spending and tax rates by the government in order to stabilize the economy. The increase in tax rates as a result of the new tax law passed by Congress is a deliberate action taken by the government to adjust the tax policy, which falls under discretionary fiscal policy. It is not increasing government debt or deficit, neither it is needs-tested taxing change.

Question 16

One characteristic of automatic fiscal policy is that it

Accepted Answer

Automatic fiscal policy does not require any legislative action by Congress to be made effective. It is built into the tax and spending systems to respond to changes in the economy without the need for further action. Examples include unemployment insurance and progressive income tax rates.

Question 17

Comparing the fiscal imbalance for the current generation versus future generations,it is the case that

Accepted Answer

Future generations are expected to bear a larger share of the fiscal imbalance due to the accumulation of debt and unfunded obligations that grow over time, leading to increased burdens on future taxpayers to cover these costs.

Question 18

An example of a discretionary fiscal policy is when

Accepted Answer

Discretionary fiscal policy involves deliberate actions by the government, such as passing new laws to change tax rates or government spending.

Question 19

To eliminate the fiscal imbalance the government could

Accepted Answer

Lowering benefits alone would negatively impact those who rely on government assistance, and increasing tax revenues alone could burden taxpayers. However, a combination of lowering benefits and increasing tax revenues would address both sides of the fiscal imbalance by reducing government spending and increasing revenue.

Question 20

Splitting the fiscal imbalance between current and future generations is called

Accepted Answer

Generational imbalance refers to the distribution of fiscal burdens and benefits between current and future generations.

Quiz 13: Fiscal Policy