Exam 27: Fiscal Policy

Expansionary fiscal policy involves

________ and ________ are the largest sources of revenue collected by the federal government.

When President Obama took office in January 2009, he pledged to pursue an expansionary fiscal policy to try to pull the economy out of the recession. The next month, Congress passed the American Recovery and Reinvestment Act of 2009, a $840 billion package of ________ that was the largest fiscal policy action in U.S. history.

The Social Security and Medicare programs have been a failure in terms of reducing poverty among elderly U.S. citizens.

The Trump administration's policies to increase labor productivity growth include all of the following except

An increase in government spending will force an appreciation of the dollar, which causes net exports to fall.

Table 27-5 -Refer to Table 27-5. The economy is in the state described by the table above. Draw the dynamic aggregate demand and aggregate supply diagram to illustrate the state of the economy in year 1 and year 2, assuming that no policy is pursued. Then illustrate and explain the appropriate fiscal policy to use in this situation. Assume that the policy results in the economy producing potential GDP.

What is meant by crowding out? Explain the difference between crowding out in the short run and in the long run.

Assuming a fixed amount of taxes and a closed economy, calculate the value of the government purchases multiplier, the tax multiplier, and the balanced budget multiplier if the marginal propensity to consume equals 0.5.

A decrease in individual income taxes ________ disposable income, which ________ consumption spending.

Figure 27-12 -Refer to Figure 27-12. An increase in government purchases causes aggregate demand to shift ultimately from AD₁ to AD₂. In the new equilibrium at point B, both real GDP and the price level have increased. The increase in real GDP is ________ than that indicated by the multiplier effect with a constant price level.

Crowding out refers to a decline in ________ as a result of an increase in ________.

Borrowing to pay for long-lived capital expenditures makes sense as

Table 27-3 -Refer to Table 27-3. Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2018 and in 2019 if Congress and the president do not use fiscal policy. If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2019, which of the following will be higher than if Congress and the president had taken no action?

Figure 27-3 -Refer to Figure 27-3. In the graph above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by Congress and the president?

Figure 27-5 -Refer to Figure 27-5. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely pursue

Automatic stabilizers refer to

The three categories of federal government expenditures, in addition to government purchases, are

As spending on government purchases increases, income rises and money demand falls.

In preparing their estimates of the stimulus package's effect on GDP, Obama administration economists estimated a government purchases multiplier of 1.57. Economist Robert Barro argues that during wartime, the military expenditures multiplier would be ________ the administration's estimate of the government purchases multiplier, and economists Lawrence Christiano, Martin Eichenbaum, and Sergio Rebelo argued that when short-term interest rates are zero, the government purchases multiplier would be ________ the administration's estimate.