Exam 27: Fiscal Policy

Data indicates that recessions following financial crises ________ recessions which do not follow financial crises.

If government increases taxes by the same amount it increases government spending, there will be no effect on aggregate demand: the increase in government spending is offset by an equal decrease in consumption spending by households.

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

Following a decrease in government spending, as the price level falls we would expect the level of interest rates to ________ and investment to ________.

Suppose real GDP is $13 trillion, potential real GDP is $13.5 trillion, and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP. Assuming a constant price level, Congress and the president would need to increase government purchases by

Figure 27-1 -Refer to Figure 27-1. Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or monetary policy is pursued. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

Which of the following would not be considered an automatic stabilizer?

It is ________ difficult to effectively time fiscal policy than monetary policy because ________.

Figure 27-10 -Refer to Figure 27-10. In the graph above, suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B. Which of the following policies could Congress and the president use to move the economy to point C?

Assume a closed economy with fixed taxes and the marginal propensity to consume is equal to 0.9. What is the government spending multiplier?

Which of the following would be considered a fiscal policy action?

The federal budget was in deficit from 1931 to 1939, except in the year 1937. Given this fact, how do you explain E. Cary Brown's statement, "Fiscal policy, then, seems to have been an unsuccessful recovery device in the 'thirties-not because it did not work, but because it was not tried."

An increase in individual income taxes ________ disposable income, which ________ consumption spending.

Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion. If the president and Congress increased government purchases by $500 billion, what would be the result on the economy?

To complement actions by the Fed to reduce inflation, Congress and the President can cut spending and/or raise taxes.

Explain why the timing of fiscal policy may be more difficult than the timing of monetary policy.

The problem causing most recessions is too little

The total value of U.S. Treasury bonds outstanding equals

Which of the following would be most likely to induce Congress and the president to conduct contractionary fiscal policy? A significant

If policymakers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply, the appropriate fiscal policy response is to