Review Questions

19 . How would a balanced budget amendment change the effect of automatic stabilizer programs?

Review Questions

20 . Give some examples of changes in federal spending and taxes by the government that would be fiscal policy and some that would not. 21 . Have the spending and taxes of the U.S. federal government generally had an upward or a downward trend in the last few decades? 22 . What are the main categories of U.S. federal government spending? 23 . What is the difference between a budget deficit, a balanced budget, and a budget surplus? 24 . Have spending and taxes by state and local governments in the United States had a generally upward or downward trend in the last few decades? 25 . What are the main categories of U.S. federal government taxes? 26 . What is the difference between a progressive tax, a proportional tax, and a regressive tax? 27 . What has been the general pattern of U.S. budget deficits in recent decades? 28 . What is the difference between a budget deficit and the national debt? 29 . What is the difference between expansionary fiscal policy and contractionary fiscal policy? 30 . Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy? 31 . What is the difference between discretionary fiscal policy and automatic stabilizers? 32 . Why do automatic stabilizers function “automatically?” 33 . What is the standardized employment budget? 34 . What are some practical weaknesses of discretionary fiscal policy? 35 . What are some of the arguments for and against a requirement that the federal government budget be balanced every year?

Critical Thinking Questions

36 . Why is government spending typically measured as a percentage of GDP rather than in nominal dollars? 37 . Why are expenditures such as crime prevention and education typically done at the state and local level rather than at the federal level? 38 . Why is spending by the U.S. government on scientific research at NASA fiscal policy while spending by the University of Illinois is not fiscal policy? Why is a cut in the payroll tax fiscal policy whereas a cut in a state income tax is not fiscal policy? 39 . Excise taxes on tobacco and alcohol and state sales taxes are often criticized for being regressive. Although everyone pays the same rate regardless of income, why might this be so? 40 . What is the benefit of having state and local taxes on income instead of collecting all such taxes at the federal level? 41 . In a booming economy, is the federal government more likely to run surpluses or deficits? What are the various factors at play? 42 . Economist Arthur Laffer famously pointed out that, in some cases, income tax revenue can actually go up when tax rates go down. Why might this be the case?