Exam 11: Fiscal Policy and the Federal Budget

Crowding out results in a decrease in

Exhibit 11-4 -Refer to Exhibit 11-4. If a person's taxable income is $30,000,how much does he pay in taxes?

A structural deficit refers to that part of the deficit that exists as a result of a downturn in economic activity.

The AD curve shifts to the right with a __________ in government purchases (G)or a __________ in taxes.

If an individual pays an additional $0.30 in taxes as a result of a $1.00 increase in income,then that individual must have a(n)__________ tax rate of 30 percent.

Suppose the economy is at a position below its institutional production possibilities frontier.In response to this situation,Keynesian economists would propose that government __________ taxes,which will cause the aggregate demand curve to shift to the __________ and Real GDP will __________.

Smith says that if government purchases rise by $100 billion,the AD curve will shift to the right.Jones says that if government purchases rise by $100 billion,the AD curve will not shift to the right.It follows that

An expansionary fiscal policy will

If there is complete crowding out as a result of an increase in government spending there will be

Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,001st dollar of taxable income earned?

Exhibit 11-1 -Refer to Exhibit 11-1.The economy is currently at point 1.Suppose the federal government increases purchases and there is complete crowding out.As a result,the aggregate demand (AD)curve in the exhibit

Some economists believe that permanently lower marginal income tax rates __________ the incentive to work and thus shift the __________.

Expansionary fiscal policy actions include __________ government spending and/or __________ taxes,while contractionary fiscal policy actions include __________ government spending and/or __________ taxes.

A federal budget surplus

The data lag is the time between

Exhibit 11-5 Assume that the farmer grows wheat and sells it to the miller, the miller turns the wheat into flour and sells it to the baker, and the baker turns the flour into bread and sells it to the final consumer. -Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT). If the government imposes a VAT rate of 10 percent,the baker must pay ___________ in VAT tax and will need to raise the price he charges the final consumer to _______________.

Exhibit 11-5 Assume that the farmer grows wheat and sells it to the miller, the miller turns the wheat into flour and sells it to the baker, and the baker turns the flour into bread and sells it to the final consumer. -Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT). If the government imposes a VAT rate of 10 percent,the government will receive ___________ in VAT revenue per loaf of bread sold and the final consumer will find that he has to pay _______________ more for a loaf of bread than he did prior to the VAT tax.

A permanent marginal tax decrease is likely to

Suppose the economy is in a recessionary gap. If government expenditures are currently $1.4 trillion and tax revenues are currently $1 trillion,the (total)budget deficit is _____________. Assume that economists estimate that if the economy were operating at full employment Government expenditures would be $1.2 trillion and tax revenues would be $1.1 trillion. The structural deficit is _________________ and the cyclical deficit is _______________.

If the economy is on the downward-sloping portion of the Laffer curve,a(an)__________ in tax rates will __________ tax revenues.