An automatic stabilizer is any program that responds to fluctuations in the business cycle in a way that moderates the effects of those fluctuations. ![]() ![]() A progressive income tax is an example of an automatic stabilizer. Automatic stabilizers are part of discretionary fiscal policy. Automatic stabilizers offset changes in income e.g., if income rises, automatic stabilizers decrease spending. Which of the following is false concerning automatic stabilizers? deliberate change in tax laws and government spending to change equilibrium income. False Discretionary fiscal policy is defined as the. True True or False: With a vertical aggregate supply curve in place, an increase in government spending acts to raise both real GDP and the general price level. True True or False: A possible problem with accumulating a large public debt is reduced capital formation because savers buy bonds to finance the deficit rather than place their assets in productive investment projects. This implies that the underlying tax structure is regressive. True True or False: Suppose that the average tax rate is 25 percent for an income level of $50,000 and 20 percent for an income level of $80,000. True True or False: The misery index is defined as the inflation rate minus the unemployment rate. False True or False: Public-sector spending plays a much bigger role in developing countries than in industrial countries. True True or False: If a tax increase affects aggregate supply, then a balanced-budget change in fiscal policy will have a larger expansionary effect on equilibrium real GDP than otherwise. Luxury taxes Sales taxes True or False: If the price level rises as real GDP increases, the multiplier effects of any given change in aggregate expenditures are smaller than they would be if the price level remains constant. Which of the following is most likely to be a regressive tax? ![]() decrease taxes and increase government spending. False To close a GDP gap, government should. False True or False: By increasing taxes, a government can close the GDP gap. True or False: Other things being equal, the steeper the slope of the aggregate supply curve, the more effective is expansionary fiscal policy. If the government increases spending by $100 billion but increases taxes by the same amount to balance the budget, what is the effect? Equilibrium real GDP increases. personal income taxes are hard to collect in agricultural countries. True Personal income taxes are more important in industrial countries than in developing countries because. True True or False: When the government intentionally uses taxes and government spending as a means to influence the level of output, employment, and general prices in the economy, it is engaging in fiscal policy. True or False: A VAT is a regressive tax. ![]() Before the Depression, the federal government was involved mostly in. national debt? None - all of these are true. True Which of the following statements is false with regard to U.S. False True or False: Assume that French budget deficits have raised the French prime interest rate relative to the U.S. False True or False: Some countries rely strictly on a VAT for government revenue. True or False: The ratio of government expenditures to GDP was higher in the 1980s and 1990s than in any other decade in the twentieth century. True If crowding out exists, the expansionary effect of government spending will be. True or False: Fiscal policy is most effective when the economy operates in the horizontal region of the aggregate supply curve. Increase the price level and leave real GDP unchanged. If the economy is in equilibrium at point C, then, other things being equal, an increase in government spending will. When the price level increases, the effect of an increase in government spending on real GDP is. For the executive branch of government to approve their planned budgets, the different government agencies submit their budget requests to the OMB, or.
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