Exam 11: Fiscal Policy and the Federal Budget

Suppose the economy is at a point below its institutional production possibilities frontier. To improve this situation, Keynesian economists might propose that the government should __________ expenditures, which will cause the aggregate demand curve to shift to the __________ in an attempt to close this __________ gap.

The Laffer curve shows the exclusively direct relationship that exists between tax rates and tax revenues.

__________ flows from government to households.

A taxpayer pays __________ tax rate on additional income if the income tax structure is progressive, __________ tax rate on additional income if the income tax structure is proportional, and __________ tax rate on additional income if the income tax structure is regressive.

Suppose the economy is in a recessionary gap. If government expenditures are currently $700 billion and tax revenues are currently $450 billion, the (total) budget deficit is _____________. Assume that economists estimate that if the economy were operating at full employment then government expenditures would be $600 billion and tax revenues would be $500 billion. The structural deficit is _________________ and the cyclical deficit is _______________.

Suppose that income tax revenues are maximized at an average (income) tax rate of 45 percent. If the Laffer curve is a correct diagrammatic representation of the relationship between tax rates and tax revenue, it follows that a tax rate of

A structural deficit refers to that part of the deficit that exists as a result of a downturn in economic activity.

As a result of an increase in government spending, some of the crowding out of private expenditures may come in the form of

Which of the following illustrates the data lag?

A budget deficit

Suppose the economy's current AD and SRAS curves intersect to the right of Natural Real GDP. Keynesians might advise a policy of tax __________ to shift __________.

Which of the following statements is true?

Exhibit 11-1 -Refer to Exhibit 11-1. The economy is currently at point 1. Suppose the federal government increases purchases and there is complete crowding out. As a result, the aggregate demand (AD) curve in the exhibit

Exhibit 11-4 -Refer to Exhibit 11-4. If a person's taxable income is $30,000, how much does he pay in taxes?

The distinctive feature of a progressive tax is that the dollar value of taxes paid rises as income rises.

Explain how tax cuts can impact both aggregate demand and aggregate supply. Give an example of each.

When we speak of expansionary fiscal policy, we are talking about policymakers __________ government spending, or __________ taxes, or both.

With complete crowding out, an increase in government spending

The economy is in a recessionary gap, wages are inflexible downward, and there is complete crowding out. Which of the following is consistent with this state of affairs?

The deficit that exists when the economy operates at full employment is called the __________ deficit.