Exam 18: Fiscal Policy

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.

Federal government purchases,as a percentage of GDP

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,approximately ________ took the form of tax cuts and ________ took the form of increases in government expenditures.

Since the Social Security system began in 1935,the number of workers per retiree has

The tax wedge is the difference between the

Crowding out,following an increase in government spending,results from (the exchange rate is the foreign exchange price of the domestic currency)

Figure 18-8 -Refer to Figure 18-8.In the graph above,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the Congress and the president use to move the economy to point C?

Part of the spending on the Caldecott Tunnel project in northern California came from the American Reinvestment and Recovery Act,which is an example of discretionary fiscal policy aimed at increasing

The income tax system serves as an automatic stabilizer over the course of the business cycle.

In the long run,most economists agree that a permanent increase in government spending leads to

An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

Tax increases on business income decrease aggregate demand by decreasing

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion.To move the economy back to potential GDP,Congress should

The level of crowding out associated with a tax cut will be smaller if the tax change has a supply-side effect than it will be if it only has a demand-side effect.

Forecasts by the Congressional Budget Office show spending on Social Security,Medicare,and Medicaid rising from 9.9 percent of GDP in 2013 to ________ percent of GDP in 2087,and by 2087 the federal government will be spending,as a fraction of GDP,________ on these three programs as it currently spends on all its programs.

When President Obama took office in January 2009,he pledged to pursue an expansionary fiscal policy to try to pull the economy out of the recession.The next month,Congress passed the American Recovery and Reinvestment Act of 2009,a $840 billion package of ________ that was the largest fiscal policy action in U.S.history.

Which of the following would not be considered an automatic stabilizer?

During 1970-1997,the U.S.federal government was

Table 18-6 Year Potential Real GDP Real GDP Price Level 1 \ 11.0 trillion \ 11.0 trillion 100 2 11.5 trillion 11.7 trillion 109 -Refer to Table 18-6.Suppose the economy is in the state described by the table above.What problem will occur in the economy if no policy is pursued? What fiscal policy tools could be used to combat the problem? Draw a dynamic aggregate demand and aggregate supply diagram to illustrate the appropriate fiscal policy to use in this situation.

An increase in the tax wedge associated with a given economic activity will decrease the level of that activity.