![]() This report focuses on a component of the latter group-the automatic stabilizers-that reflect cyclical movements in real (inflation-adjusted) output and unemployment. By comparison, CBO projects that the deficit will average 4.1 percent of GDP during the five years from 2012 through 2016 if current laws remain in place.ĬBO's projections of the budget deficit are affected by legislation that governs taxation and spending and by the automatic responses of revenues and outlays to developments in the economy and other factors. At 9.3 percent of gross domestic product (GDP) in 2011, the deficit in those terms will be the second largest in more than half a century (behind only the 2009 deficit, which was 10.0 percent of GDP). ![]() ![]() CBO estimated in March that the baseline budget deficit will rise from $1.3 trillion in fiscal year 2010 to $1.4 trillion in 2011 and then will average $692 billion over the next five years. For those projections, CBO assumed the continuation of current laws and policies that affect taxes and mandatory spending programs and extrapolated the growth of discretionary spending by using projected rates of inflation. This relationship best describes how the progressive income tax system:ĥ4.Which is an example of an automatic stabilizer? As real GDP decreases, income tax revenues:Ī. increase and transfer payments decrease.ī. decrease and transfer payments increase.ĥ5.If government tax revenues change automatically and in a countercylical direction over the course of the business cycle, this would be called a(n):ĥ6.In the United States, income taxes and transfer payments:Ī. are the source of most of the operational lag with fiscal policy.ī. act as automatic stabilizers for fluctuations in income.Ĭ. decrease interest rates and the net export effect.ĥ7.Due to automatic stabilizers, when income rises, government transfer spending:ĥ8.Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's deficit that:ĥ9.One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy:Ī. makes the actual budget a better reflection of the condition of the economy than the standardized budget.ī. does not produce a cyclical deficit as discretionary policy does.Ĭ. is not subject to the timing problems of discretionary policy.ĭ. has a greater multiplier effect than discretionary policy.Ħ0.A new member of Congress notes that "ersonal income tax collections automatically fall and transfers and subsidies automatically rise as national income declines." This observation best describes how the personal income tax, transfers, and subsidies:Ĭ. cause crowding out and reduce equilibrium GDP.ĭ. contribute to the recognition lag with fiscal policy.In March 2011, the Congressional Budget Office (CBO) released its most recent baseline projections of federal revenues, outlays, and budget balances for the next 10 years. ![]() ![]() This relationship best describes how the progressive income tax system:ĭ. provides built-in stability for the economy.ĥ3.As the economy expands, the collection of personal income tax revenues automatically rises. 51.A government economist states that "he collection of personal income tax revenues automatically falls during a recession." This statement best describes how the progressive income tax system:Ī. increases crowding out in the economy.ī. decreases real interest rates in the economy.Ĭ. offsets the timing problem for fiscal policy.ĭ. serves as an automatic stabilizer for the economy.ĥ2.As the economy declines, the collection of personal income tax revenues automatically falls. ![]()
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