Exam 13: B: Fiscal Policy, Deficits, Surpluses, and Debt

Refer to the above diagram where T is tax revenues and G is government expenditures.All figures are in billions of dollars.If the full-employment and actual GDP are each $400 billion, government can balance its budget by:

The key to assessing the direction of discretionary fiscal policy is to observe changes in the full-employment deficit.

An expansionary fiscal policy is shown as a:

In the above diagram, tax revenues vary:

Refer to the above diagram wherein T is tax revenues and G is government expenditures.All figures are in billions.The budget will entail a deficit:

(1) The composite index of leading indicators turns downward for three consecutive months; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Parliament; (4) The tax cut is passed by Parliament; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover.Refer to the above information.The operational lag of fiscal policy is reflected in events:

In a certain year the aggregate demand at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases.Full-employment GDP is $200 billion.To obtain full employment under these conditions the government should:

In 2011, the level of taxation (the average tax rate) required to pay interest on the public debt was about:

The impact of an expansionary fiscal policy may be strengthened if it crowds out some private investment spending.

The public debt is the accumulation of all deficits and surpluses which have occurred through time.

Refer to the above diagram where T is tax revenues and G is government expenditures.All figures are in billions of dollars.If the full-employment GDP and actual GDP are each $400 billion, this economy will realize a:

The full-employment budget measures what the Federal budget deficit or surplus would be at full employment output with existing tax and spending decisions.

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation.If the MPS is .25, then it could:

A net export effect may partially reinforce an expansionary fiscal policy.