Exam 27: Fiscal Policy

Figure 27-8 -Refer to Figure 27-8. 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?

President Trump's proposed increase in spending on infrastructure projects is an example of discretionary fiscal policy aimed at increasing

Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.9, the tax rate equals 0.25, and the marginal propensity to import equals 0.15.

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, an $840 billion package of spending increases and tax cuts that was

Figure 27-11 -Refer to Figure 27-11. In the graph above, the shift from AD₁ to AD₂ represents the total change in aggregate demand. If government purchases increased by $50 billion, then the distance from point A to point B ________ $50 billion.

An increase in government spending increases the supply of money in our economy.

In a closed economy with fixed or autonomous (non-income dependent) taxes, the balanced budget government purchases multiplier is negative.

Article Summary In November 2017, the House Ways and Means Committee announced a tax reform bill which includes hundreds of changes to the tax code. Overall, the tax plan represents a move in the direction of greater neutrality and global competitiveness. Following are eight of the most important provisions in the tax bill. 1. The corporate tax rate would be reduced to 20 percent. 2. Pass-through business income would be taxed at a maximum rate of 25 percent. 3. Some disincentives to investment would be rolled back. 4. The country would move to a territorial tax system. 5. Many itemized deductions would be eliminated. 6. The estate tax would be repealed. 7. The tax treatment of interest would change. 8. Tax expenditures would be curtailed. -Refer to the Article Summary. The repeal of the estate tax would increase the posttax return to saving, causing a(n) ________ in the supply of loanable funds and a(n) ________ in investment spending.

Lowering the individual income tax rate will increase household disposable income and consumption spending.

The Congressional Budget Office estimates the size of the government purchases multiplier to be

If the federal budget has an actual budget deficit of $100 billion and a cyclically adjusted budget deficit of $75 billion, then the economy

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

An equal increase in government purchases and taxes will cause

If the federal budget has an actual budget surplus of $75 billion, but a cyclically adjusted budget surplus of $50 billion, then the economy must be above potential real GDP.

Which of the following is an example of discretionary fiscal policy?

Give an example of an automatic stabilizer. Explain how automatic stabilizers work in the case of recession.

The federal government debt as a percentage of GDP fell

Suppose that the federal budget is balanced when GDP is at potential GDP. If equilibrium GDP falls below potential

Federal government purchases as a percentage of GDP

Compare the effect on the price level and real GDP of a decrease in tax rates assuming a supply-side effect versus no supply-side effect. Compared to no supply-side effect, including a supply-side effect for the decrease in tax rates will cause the price level to increase ________ and real GDP to increase ________.