126)Answer:TrueFalseDiff: 2Page Ref: 928/554Topic: The Federal Budget as an Automatic StabilizerLearning Outcome: Macro 9: Discuss fundamental approaches to fiscal policyAACSB: Analytic SkillsSHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.127) When does the Treasury Department borrow? Why would the Treasury have to borrowmore than it estimated? When would the Treasury repay what it borrowed, and who is itrepaying?127)Answer: When tax revenues are not sufficient to pay the federal governmentʹs bills, theTreasury borrows the necessary funds. The Treasury would need to borrow morethan it estimated if the federal budget deficit is larger than was estimated. TheTreasury would repay borrowed funds if the federal budget is in surplus, and it isrepaying the investors who had bought its bonds.Diff: 2Page Ref: 931/557Topic: Federal Government DebtLearning Outcome: Macro 9: Discuss fundamental approaches to fiscal policyAACSB: Analytic Skills128) How could the existence of an unemployment insurance system or other transferprograms have reduced the severity of the Great Depression?128)Answer: If these programs existed during the Great Depression, they would have mitigatedits severity. In our economy today, workers laid off during a recession receiveunemployment insurance payments. This extra income results in these workersspending more than they would have without these payments. In addition,households whose incomes fall below certain levels during recessions becomeeligible for food stamps and other programs. These transfers also help increasespending by these households. The increased spending happens automatically,stimulates aggregate demand, and helps stabilize the economy. These programs didnot exist during the Great Depression. Workers who lost their jobs had theirincomes drop to zero and had to rely on savings, charity, and borrowing to survive.These workers dramatically cut back on their spending. This contributed to makingthe economic slowdown worse.Diff: 2Page Ref: 927-928/553-554Topic: The Federal Budget as an Automatic StabilizerLearning Outcome: Macro 9: Discuss fundamental approaches to fiscal policyAACSB: Analytic Skills39
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