Exam 13: Fiscal Policy and the Federal Budget

To combat a recession, discretionary policy could result in a(n)

According to the crowding-out effect, an increase in government spending will result in inflation, which reduces the purchasing power of the dollar and decreases investment spending.

A $50 billion increase in taxes on households has a(n)

According to the concept of automatic stabilizers, tax receipts automatically increase and transfer payments automatically decrease during economic prosperity, thus slowing the growth of aggregate demand and controlling upward pressure on the price level when the economy is expanding.

All of the following are problems of fiscal policy except

Suppose the economy is in a recession and that the marginal propensity to consume is 0.8. Assuming that the price level is constant, by how much would government have to decrease household taxes in order to increase real output by $200 billion?

According to the Laffer Curve, when taxes are increased from 0 percent to a rate consistent with the maximum point on the curve, tax revenues will

As national income increases, tax revenues increase and transfer payments decrease.

Proponents of a balanced budget amendment believe this is needed because they feel

Which combination of fiscal policies would have the greatest expansionary effect on the economy?

Unlike discretionary fiscal policy, automatic stabilizers consist of

Assume that the economy's marginal propensity to consume is 0.75 and that the price level is constant. If the government decreases household taxes by $100 billion, real output will increase by $300 billion.

______ is the use of government expenditures and taxes to promote full employment, stable prices, and economic growth.

According to supply-side economists, a reduction in marginal tax rates causes take-home pay to increase, which increases consumption spending and the aggregate supply curve.

Figure 13.1 Aggregate Supply and Aggregate Demand -Refer to Figure 13.1. Increased government spending, as a discretionary fiscal policy, would shift

Food stamps, unemployment compensation benefits, the federal personal income tax, and federal construction expenditures are automatic stabilizers.

In 2006, federal debt equaled 38 percent of GDP.

If the aggregate supply curve is horizontal, an expansionary fiscal policy will result in increased output, along with

Discretionary fiscal policy is the deliberate use of changes in government expenditures and taxation to affect aggregate demand and influence the economy's performance in the short run.

The crowding-out effect and the foreign-trade effect enhance the ability of fiscal policy to combat recession.