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Chapter 13 - Fiscal Policy, Deficits, and Debt
141. Up until 2008, Social Security revenues exceeded payouts, and the excess inflow was
used to buy:
142. In the later part of 2009, something interesting happened relative to Social Security, in
that for the first time:
143. A major concern with the Social Security trust fund is that:
Chapter 13 - Fiscal Policy, Deficits, and Debt
144. Medicare and Social Security are similar in the following respects, except:
145. Expansionary fiscal policy during a recession means cutting taxes, increasing
government spending, or taking both actions.
146. A decrease in taxes is one of the options that can be used to pursue a contractionary
fiscal policy.
Chapter 13 - Fiscal Policy, Deficits, and Debt
147. The goal of expansionary fiscal policy is to rein in inflation.
148. If the government wants to reduce unemployment using fiscal policy, it may do so by
increasing government spending.
149. Expansionary fiscal policy tends to lead to a smaller budget deficit.
150. A decrease in government spending and a cut in taxes would be a pair of fiscal policies
that reinforce each other.
Chapter 13 - Fiscal Policy, Deficits, and Debt
151. The flexibility of the price level tends to dampen the multiplier effect of fiscal policy.
152. Built-in stability refers to the fact that with a progressive tax system, net tax revenues
vary directly with the level of GDP.
153. If taxation becomes more progressive, the built-in stability in the economy will
decrease.
154. Transfer payments that increase as GDP falls are one type of automatic stabilizers in the
economy.
Chapter 13 - Fiscal Policy, Deficits, and Debt
155. The key to assessing whether fiscal policy is expansionary or not is to observe the
change in the cyclically-adjusted budget as a percentage of GDP.
156. The actual and cyclically-adjusted budgets will be equal when the economy is at full
employment.
157. If the cyclically-adjusted budget deficit goes from 2% to 1% of GDP, then it indicates
that fiscal policy has turned more contractionary.
158. State and local governments' fiscal policies in the U.S. typically reinforce the fiscal
policy of the Federal government as the economy goes through a business cycle.
Chapter 13 - Fiscal Policy, Deficits, and Debt
159. The concept of a "political business cycle" suggests that a possible cause of
macroeconomic instability is due to the use of fiscal policy for political purposes.
160. The impact of an expansionary fiscal policy may be strengthened if it crowds out some
private investment spending.
161. The so-called crowding-out effect refers to government spending crowding out private
investment spending.
162. The crowding-out effect will be minimal when the economy is in a severe recession.
Chapter 13 - Fiscal Policy, Deficits, and Debt
163. The crowding-out effect could cause aggregate demand to shrink if government spending
increases.
164. It is possible for an increase in government spending to encourage, instead of crowding
out, private investment.
165. A budget deficit causes the government to issue or sell Treasury bonds.
166. If the budget deficit becomes smaller, then it will cause the public debt to also become
smaller.
Chapter 13 - Fiscal Policy, Deficits, and Debt
167. As of 2009, more than half of the total debt of the U.S. government is owed to
foreigners.
168. More than half of the U.S. public debt is owed to Americans.
169. Over 95 percent of the total public debt is held by banks and private individuals.
170. A large public debt will not bankrupt the Federal government because it can refinance
the debt or increase taxes to pay it.
Chapter 13 - Fiscal Policy, Deficits, and Debt
171. The payment of interest on the public debt in the U.S. mildly increases income
inequality.
172. The financing of the public debt can increase interest rates and reduce private investment
spending.
173. When the public debt is held by foreigners it is not a real burden on real domestic
output.
174. The Social Security program is a retirement system where payments to retirees come
from their previous contributions.
Chapter 13 - Fiscal Policy, Deficits, and Debt
175. Social Security contributions will continue to exceed payouts until the middle of this
century.
176. The Medicare trust fund is expected, if current flows continue, to be depleted within the
next ten years.
