Exam 18: Fiscal Policy

Suppose that the current equilibrium GDP is $14.5 trillion and that potential GDP is $14.3 trillion.Will decreasing government purchases by $200 billion,or raising taxes by $200 billion,restore the economy to potential GDP? Explain.

A law requiring the government to balance its budget in each year would serve as an automatic destabilizer.

Increasing the federal budget deficit will contribute to increasing the federal government debt.

The tax multiplier is calculated as "one minus the government purchases multiplier."

Which of the following would be classified as fiscal policy?

The majority of dollars spent by government prior to the Great Depression was spending at the ________ level.In the post World War II period,two-thirds to three quarters of all dollars spent by government in the United States are spent at the ________ level.

An increase in the money supply is a discretionary fiscal policy which will increase aggregate demand.

A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

An increase in government purchases of $200 billion will shift the aggregate demand curve to the right by

Suppose real GDP is $14 trillion and potential real GDP is $14.4 trillion.An increase in government purchases of $400 billion would cause real GDP to ________ potential real GDP (assuming a constant price level).

What is expansionary fiscal policy? What is contractionary fiscal policy?

Which of the following would be considered an active fiscal policy?

The aggregate demand curve will shift to the left ________ the initial decrease in government purchases.

It is ________ difficult to effectively time fiscal policy than monetary policy because ________.

Table 18-3 Year Potential Real GDP Real GDP Price Level 2013 \ 14.0 trillion \ 14.0 trillion 150 2014 14.5 trillion 14.2 trillion 152 -Refer to Table 18-3.Consider the hypothetical information in the table above for potential real GDP,real GDP and the price level in 2013 and in 2014 if the Congress and the president do not use fiscal policy.If the Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2014,which of the following will be higher than if the Congress and the president had taken no action?

Some economists argue that the federal government should normally run a deficit at potential GDP,with the borrowed funds applied to

Give an example of an automatic stabilizer.Explain how automatic stabilizers work in the case of recession.

As spending on government purchases increases,income rises and money demand falls.

Which of the following is an example of discretionary fiscal policy?

To combat a recession with discretionary fiscal policy,Congress and the president should