Exam 15: Fiscal Policy

If no fiscal policy changes are made, suppose the current aggregate demand curve will increase horizontally (shift rightward) by $1,000 billion and cause inflation. If the marginal propensity to consume is 0.90, federal policymakers could follow Keynesian economics and restrain inflation by decreasing:

Which of the following is an example of an automatic stabilizer?

The fraction of each added dollar of income that is used for consumption is called the:

If the economy is experiencing demand-pull inflation, then the appropriate government policy would be to shift the aggregate demand curve by using a:

If the MPC is 0.80, and if the goal is to increase real GDP by $200 million, then by how much would government spending have to change to generate this increase in real GDP?

Exhibit 15-6  Aggregate demand and supply model In Exhibit 15-6, if the aggregate demand curve is at AD₃ , the government should:

The marginal propensity to consume (MPC) is computed as the change in:

Personal income taxes:

When the federal government is running a budget deficit:

To help close an inflationary gap, the government could:

Changes in government spending and/or taxes as the result of legislation, is called:

Structures in the economy increase aggregate demand when the economy is in recession and decrease aggregate demand when the economy is inflationary are known as:

The ratio of a change in consumption to a change in income is the:

Exhibit 15-5  Aggregate demand and supply model Suppose the economy in Exhibit 15-5 is in equilibrium at point E₁ and the marginal propensity to consume (MPC) is 0.75. Following Keynesian economics, the federal government can move the economy to point E₂ and reduce inflation by:

If the marginal propensity to consume (MPC) is 0.75, the value of the spending multiplier is:

The greater the marginal propensity to consume (MPC) in the economy, the greater the spending multiplier.

Which of the following groups believes that the economy can achieve full employment without inflation through tax reductions, lower resource prices, and deregulation?

The Laffer curve is representative of which of the following schools?

The spending multiplier is defined as:

The formula to compute the spending multiplier is: