Exam 27: Fiscal Policy

If tax reduction and simplification are effective, then

Figure 27-2 -Refer to Figure 27-2. In the graph above, if the economy is at point A, an appropriate fiscal policy by Congress and the president would be to

If government spending and the price level increase, then

A government tax rebate of $1,000 would ________ your disposable income by ________.

The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.

Crowding out refers to a decrease in government purchases as a result of an increase in private expenditures.

Explain why the tax multiplier is different from the government purchases multiplier, in both sign and relative magnitude.

In preparing their estimates of the stimulus package's effect on GDP, Obama administration economists estimated a government purchases multiplier of 1.57. This indicates that a ________ increase in government purchases would increase equilibrium real GDP by $157 billion

Illustrate and explain the effects of tax reduction and simplification using the dynamic aggregate demand and supply model. To simplify the analysis, assume that aggregate demand is not affected by the tax cut.

If Congress and the president pursue an expansionary fiscal policy at the same time as the Federal Reserve pursues an expansionary monetary policy, how might the expansionary monetary policy affect the extent of crowding out in the short run?

A decrease in which of the following would decrease the tax wedge?

If the government purchases multiplier equals 2, and real GDP is $14 trillion with potential real GDP $14.5 trillion, then government purchases would need to increase by ________ to restore the economy to potential real GDP.

The majority of dollars spent by government prior to the Great Depression was spending at the ________. In the post World War II period, two-thirds to three quarters of all dollars spent by government in the United States are spent at the ________.

A change in consumption spending caused by income changes is ________ change in spending, and a change in government spending that occurs to improve roads and bridges is ________ change in spending.

The aggregate demand curve will shift to the right ________ the initial decrease in taxes.

Which of the following would be classified as fiscal policy?

Figure 27-1 -Refer to Figure 27-1. Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

A law requiring the government to balance its budget in each year would serve as an automatic destabilizer.

In an open economy, the government purchases multiplier will be larger the

Suppose that the current equilibrium GDP is $14.5 trillion and that potential GDP is $14.3 trillion. Will decreasing government purchases by $200 billion, or raising taxes by $200 billion, restore the economy to potential GDP? Explain.