Exam 16: Budget Deficits In The Short and Long Run

The federal budget deficit in 2009 was more than eight times larger than the deficit in 2007.

The national debt

In the late 1990s,the more than expected increases in tax revenues were the result of

Both Social Security expenditures and the payroll tax receipts that finance them are treated as off-budget items.

Under a balanced budget policy,a sharp decline in GDP will cause

The budget deficits of the 1980s and early 1990s differ from others in the post-World War II era in that they were

The purpose of fiscal policy should be to

"Crowding-out" refers to the process by which

The crowding-out effect is more likely to dominate the crowding-in effect when investment is relatively

"Budget deficits are inflationary." The truth of this statement depends on

Figure 16-2 -Suppose that Figure 16-2 shows the effects of reducing the budget deficit by raising taxes.If authorities do not want real GDP to fall,monetary policy must

Monetizing the debt has what effect on the economy?

If the Federal Reserve takes no countervailing actions,an expansionary fiscal policy will increase the deficit,increase GDP,increase prices,and drive up interest rates.

Under a balanced budget policy,a sharp rise in GDP will cause

Many economists believe that if fiscal policy turns contractionary to reduce the deficit,

The structural deficit does not depend on the state of the economy.

Figure 16-2 -Assume that a contractionary monetary policy has shifted the aggregate demand curve in Figure 16-2 from D₀D₀ to D₁D₁.Fiscal authorities who wish to restore real GDP to the full-employment level will

The "crowding out" effect states that government spending pushes up interest rates and reduces private investment spending.

The budget deficit

Because of the American national debt,future Americans will be burdened by heavy interest payments which will necessitate higher taxes.