Deck 48: Government Spending and Taxes

Question 1

Explain how the amount of government spending and government spending as a proportion of GDP behave over the business cycle.
-What are some automatic types of government spending? Does automatic government spending tend to go up or down in a recession?

Answer 1

Federal spending rises slowly over the whole expansion and continues to climb in economic contractions The rise during a contraction is largely due to automatic government spending

Question 2

Explain how the amount of government spending and government spending as a proportion of GDP behave over the business cycle.
-What are some discretionary types of government spending?

Answer 2

Discretionary spending includes military expenditures and any other programs that must be annually authorized by Congress

Question 3

Explain how government deficit behaves over the business cycle.
-Does deficit spending help or hurt aggregate demand? Explain.

Answer 3

Deficit spending may help or hut depending on the economic situation Deficit spending increases money into the economy In moderate amounts, government deficit spending stimulates the economy and may help restore unemployment during a recession If the economy is already at full employment, continued deficit spending cannot increase output and will lead to inflation

Question 4

Explain how government deficit behaves over the business cycle.
-Does the deficit usually go up or down in an expansion? Explain.

Question 5

Explain how government deficit behaves over the business cycle.
-Does the deficit usually go up or down in a recession? Explain.

Question 6

Explain how taxes behave over the business cycle.
-Does automatic taxation tend to go up or down in a recession?

Question 7

Explain how taxes behave over the business cycle.
-Explain why tax rates and tax revenues often decrease in recessions and increase in expansions.

Question 8

Compare and contrast how spending and deficit spending differ in times of war and peace.
-How is government spending for war financed? What does this mean for the deficit if taxes are not raised? If taxes are raised?

Question 9

Compare and contrast how spending and deficit spending differ in times of war and peace.
-Does military spending always decrease during peacetime? What are other programs that may receive extra funds during times of peace? What does this mean for the deficit if taxes are not raised? If taxes are raised?

Question 10

Government spending that is the result of previously enacted policies and laws such as Social Security and unemployment compensation is called

A) discretionary fiscal policy
B) automatic fiscal policy
C) continuous fiscal policy.
D) imbedded fiscal policy.

Question 11

Assume that the federal government collected $2,407 billion in revenues in 2006, and total outlays were $2,655 billion.

A) there was a surplus of $248 billion in 2006
B) there was a deficit of $248 billion in 2006
C) the government debt in 2006 was $248 billion
D) government transfers in 2006 were $248 billion

Question 12

During expansionary periods in peacetime, we can expect

A) revenues to increase.
B) government spending to fall
C) revenues to fall
D) deficits to rise.

Question 13

During expansionary period in peacetime, we can expect

A) revenues to fall
B) government spending to rise
C) deficits to rise
D) government spending to fall.

Question 14

The federal law providing for benefits for the unemployed

A) was passed
B) in the 1960s
C) in the 1930s
D) in the 1980s
E) there is no federal law providing unemployment compensation.

Question 15

Every year the President and Congress decide on spending for various programs. This type of spending is called

A) deficit spending
B) discretionary spending
C) automatic spending.
D) transfer payments.

Question 16

A "progressive" tax is

A) one that is proposed by a progressive economist.
B) one in which the percentage rises as the level of income rises.
C) one in which the amount rises as the level of consumption rises.
D) one in which the percentage rises as the level of wealth rises.

Question 17

Andrew purchased 1000 shares of stock for $25,000 in 1987. In 1997 he sold these 1000 shares for $72,000. Andrew has experienced

A) a capital gain
B) a capital loss.
C) an increase in earned income.
D) a gain or a loss depending on the rate of inflation.

Question 18

A "regressive" tax is

A) one that will expire after 10 years
B) one in which the percentage falls as the level of income rises.
C) one in which the amount falls as the level of consumption rises.
D) one in which the percentage remains the same, but the amount rises with income.