1. ________ was the first president to consciously use fiscal policy to stabilize the economy.
2. Walter Heller was President Lyndon Johnson s chief economic adviser. ________ (True/False)
3. The U.S. economy witnessed federal budget surpluses in ________.
4. Long-run average income is known as ________ income.
5. Tax Refunds and Consumer Spending. In 1999, the Internal Revenue Service began to mail out refund checks because of changes in the tax law in 1998. Economic forecasters predicted that consumption and GDP would increase because of higher refunds on income taxes. Using each of the following assumptions, do you think the forecasters were correct? Answer yes or no.
a. Taxpayers were not aware they would receive refunds until they had completed their income tax statements.
b. Taxpayers did know they would receive refunds but, as consumers, based their spending decisions solely on their current levels of income.
c. Taxpayers did know they would receive refunds and, as consumers, based their consumption decisions on their permanent incomes.
6. The Rise and Fall of Fiscal Surpluses. What factors led the United States from federal surpluses at the end of the 1990s to deficits in the first decade of the twenty-first century? What factors led to the demise of surpluses?
7. The Most Effective Part of the Stimulus Package. President Obama s stimulus package contained several different components: tax cuts for individuals, infrastructure projects, and other government spending and aid to the states to pay for health and other services. Many economists believed that the component that was most effective was the aid to the states. Explain why this component might be particularly effective and give reasons why the others may not be.
8. College Students and Tax Rebates. If a college student with a low credit card limit received a tax rebate, do you think he or she would be more likely to save it or spend it? How about a middle-aged married man that does not have a low credit card limit? Explain your reasoning.
9. A Dramatic Drop in the Corporate Tax. Go to the Web site for the Congressional Budget Office (www.cbo.gov) and find the data for corporate tax revenue between 2007 and 2009. What was the decrease and how can you explain it?
10. Long-Run Deficit Projections. The Congressional Budget Office makes long-run deficit budget projections, extending far into the twenty-first century. What are the main causes of the long-run deficits projected by the CBO?