Exam 15: Fiscal Policy

If no fiscal policy changes are implemented to fight inflation, suppose the aggregate demand curve will exceed the current aggregate demand curve by $900 billion at any level of prices. Assuming the marginal propensity to consume is 0.90, this increase in aggregate demand could be prevented by:

In the U.S. economy, the effect on federal tax revenues and spending of an increase in the unemployment rate is to:

"Last month unemployment fell to 4 percent, its lowest level in years. The economy is growing rapidly, but consumer prices have risen at an annual rate of 10 percent during the last six months." Which of the following policies would be most appropriate under these circumstances?

If MPC = 0.80, how much should government spending change to increase real GDP by $500?

The Laffer curve represents the relationship between real GDP and various possible tax rates.

Automatic stabilizers combine changes in discretionary fiscal policy with changes in government spending and taxes influenced by the business cycle in order to stabilize the economy.

Exhibit 15-6  Aggregate demand and supply model In Exhibit 15-6, if the aggregate demand curve is at AD₂ , the government should:

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

Following Keynesian economics, and assuming a marginal propensity to consume (MPC) of 0.75, an increase in federal government spending of $100 billion at below full employment would be expected to shift the aggregate demand curve by $300 billion to the right.

The presence of the automatic stabilizers means an increase in the budget deficit will be automatically experienced during an economic expansion whereas a budget surplus will be automatically experienced during a recession.

If the economy is experiencing unemployment, then the most appropriate government policy would be to:

The marginal propensity to consume (MPC) is the change in consumption divided by the change in saving.

Which of the following statements is true ?

Expansionary fiscal policy consists of:

If the marginal propensity to consume (MPC) is 0.75, a $50 decrease in government spending, other things being equal, would cause equilibrium real GDP to:

The size of the spending multiplier depends on the marginal propensity to consume (MPC).

If the marginal propensity to consume (MPC) is 0.80, the value of the spending multiplier is:

Automatic stabilizers are government programs that:

Which economist(s) argued that high tax rates produce less tax revenues and limit the expansion of real GDP and employment?

If the marginal propensity to consume (MPC) is 0.80, the value of the spending multiplier is 2.