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Macro Section 15-18
| Term | Definition |
|---|---|
| How do tax cuts affect government budget? | Riases payroll tax and increased government revenue |
| What has happened to the size of mandatory and discretionary spending? | Mandatory spending programs has almost doubled. In contrast, discretionary spending is a shrinking part of the federal budget. The growing size of the Social Security and Medicare programs is partly responsible for this trend. |
| What would help to fix Social Security problems | Increasing retirement age |
| Difference between debt and deficits | debt is the total of all accumulated and unpaid budget deficits. Deficit is when spending is greater than revenue annually |
| In 2008, in the midst of the Great Recession, the national debt was $10,024 billion. Nominal GDP in 2009 was $13,973 billion. What was the debt-to-GDP ratio in 2009 with outlay 24% and revenue14%? | 82% |
| When is The government is said to have a budget surplus? | When tax revenues are higher than outlays, the government hasn’t spent all that it has collected in revenues and has a budget surplus. |
| What is the second largest source of tax revenue for the U.S. government? | payroll taxes |
| What is the largest source of tax revenue for the U.S. government? | personal income tax |
| What is the third largest source of tax revenue for the U.S. government? | corporate income tax |
| difference between marginal income tax rate and average income tax rate? | Marginal income tax rate is used with progressive tax brackets and average is used by dividing the marginal income tax by your income |
| with 7% deficit In 2012, nominal GDP in the United States was $15,684 billion. Approximately how much did the U.S. government borrow from foreigners if foreign-held debt was 30% in 2012? | 0.07*$15,684 billlion = $1,097.9 billion (7% of nominal GDP in 2012). Thirty percent, or 0.30*$1,097.9 billion = $329.4 billion |
| During the _________ phase of the business cycle, government expenditures tend to ____ and tax revenue tends to fall. | recession/contraction, increase |
| What is/ would be considered a transfer payment by the government? | Transfer payments are those cash (money) payments made where there are no goods or services received in return. Example is payments made to senior citizens to cover their monthly expenses with a cash payment cuz nothing in return |
| Since 1990, for how many years has the government run a budget surplus? | four years |
| What is fiscal policy? | Fiscal policy involves changes in taxes or spending (government budget) to achieve economic goals. |
| What fiscal policies did bus and obama do? | President George W. Bush did tax rebate for Americans. Decreased tax and increased money in economy. President Obama signed an act that shifted to government spending put mor emoney in economy, was more than four times larger than the first. |
| assume that the government increases spending by $100 million that is entirely deficit-financed. The new equilibrium in the loanable funds market is now $840 million. What is in savings investment, and how much did private consumption decrease? | $840, $740, $40 (savings increased by $40 so investment decreased by $40) |
| What is The main goal of supply-side fiscal policy? | involves the use of government spending and taxes to shift long-run aggregate supply |
| Difference between demand and supply side fiscal policy? | demand-side fiscal policy focuses on incentives to increase spending, while supply-side fiscal policy focuses on incentives to increase production. |
| If an economy is experiencing an unemployment rate less than the natural rate, which of the fiscal policies would you suggest in order to restore the economy to full employment? | reduce aggregate demand which can be achieved by contractionary fiscal policy—either increasing taxes or lowering government spending. |
| government spending into the economy: $789 billion. With a marginal propensity to consume of 0.75, how much should the program change aggregate demand? | A marginal propensity to consume of 0.75 gives a multiplier of 4. The multiplier effect causes the government program to increase from $789 billion to $789 x 4 = $3,156 billion. |
| How does Lower income tax rates affect demand fiscal policy? | Demand-side fiscal policy predicts that a lower tax rate will leave more funds in the hands of consumers, who can then spend more on consumption. An increase in consumption will lead to a higher AD. |
| How does Lower income tax rates affect supply fiscal policy? | supply-side fiscal policy claims that low tax rates create incentives for individuals to work harder and produce more, since they get to keep a larger share of their income. This has the permanent effect of increasing LRAS. |
| For relatively lower tax rates, an increase in tax rates will do what to tax revenue? | increasing the tax rate in this region will lead to higher tax revenue. |
| When will contractionary fiscal policy be implemented? | Contractionary fiscal policy would be implemented when the economy is in an expansion. |
| The multiplier effect of $100 billion will increase total income by $400 billion and the marginal propensity to consume is 0.75. If we account for PARTIAL crowding out, then the increase in income will be what? | in the presence of crowding out, the total increase in income will be less than $400 billion. |
| According to the new classical critique of fiscal policy, an increase in government spending today will lead to what in current savings? | increase their current savings. |
| A $100 bill in your wallet is part of M1 or M2? | Both A $100 bill counts as currency, which is a part of M1. It is also a part of M2 because M2 includes everything in M1 as one of its components. Therefore, the $100 bill counts as both M1 and M2. |
| What is considered the same as money? | The money supply consists of currency and deposits. Checking account deposits because they are liquid |
| What is not considered the same as money? | Credit cards act as a temporary loan and are not counted as money. Checks are a tool to access the deposits in your bank account, but they are not money. Savings account deposits are not considered as liquid as checking account deposits |
| What is a difference between fiat and commodity money? | Commodity money is when money is tied to something that is real such as gold, this limits the ability to create more, as time will be required to acquire more. Fiat money, no constraint exists, so the government can expand the money supply easily. |
| The Federal Reserve uses __________ today to actively manage monetary policy. The Federal Reserve has not used __________ to actively manage monetary policy since 1992. | Open-market operations and quantitative easing, no longer uses reserve requirements and the discount rate |
| You go to Starbucks and see the price of a tall latte is quoted as $3.00. You buy the latte and pay with $3.00 cash. In the first instance money serves as ___________ while in the second instance money serves as ___________. | A unit of account is the measure in which prices are quoted; money serves here as a medium of exchange. |
| What are debts of a bank? | Deposits are a bank’s debts, as these are what the bank owes to the individual depositors should they wish to collect them. |
| You transfer $100 from your savings account to your checking account. As a result, M1 will ____________ and M2 will ____________. | M1 increases, M2 stays the same |
| The amount of credit from credit cards available to consumers in 2012 was $1,057 billion. This would cause the M1 money supply to ____ and the M2 money supply to ______. | No effect, since credit cards not part of money supply |
| $10,000 in your checking account. You withdraw $500 cash from your account and hide it under your pillow for future use. If the required reserve ratio is 10%, what will be the maximum impact on money supply today as a result of your action? | 4500 |
| Why is changing reserve requirements relatively rare? | it can be extremely costly to private sector banks. |
| The Phillips curve depicts the relation between what? | between the unemployment rate and the inflation rate. |
| What is likely to happen if the Fed buys Treasury securities from banks? | this will increase the level of reserves in the banking system. As a result, loans will be cheaper and the interest rate will fall. At the lower interest rate, firms will be willing to take out more loans for investment. |
| How is the philips curve in the short run? the long run? | downward sloping, vertical at the natural rate of output (u*) |
| What can change relatively quickly in the short run? | Output prices are easy to change in the short run, while input prices typically are the slowest prices to adjust. |
| How does less than anticipated inflation effect Purchasers of labor and other inputs, along with borrowers of loanable funds | They are hurt when inflation is less than anticipated, because they end up paying more in real terms than they intended to |
| How does less than anticipated inflation affect Lenders of loanable funds and suppliers of labor and other inputs | They are not hurt when inflation is less than anticipated because the real value of what they are selling or getting paid back is more than they thought it was going to be. |
| True or false: Monetary policy does not serve to shift the long run aggregate supply curve | True |
| What is the expected outcome of expansionary monetary policy in the short run? | increase the money supply should cause an increase in the aggregate demand curve. Causes real GDP, or total output, to increase. More workers are employed, resulting in higher employment levels. Also, the price level has risen (inflation). |
Created by:
v.virgil
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