Exam 18: Fiscal Policy

The automatic budget surpluses and budget deficits that occur in the federal budget over the business cycle

The federal government debt as a percentage of GDP fell during the period

Table 18-5 Year Potential Real GDP Real GDP Price Level 1 \ 10.2 trillion \ 10.2 trillion 100 2 10.8 trillion 10.6 trillion 103 -Refer to Table 18-5.The economy is in the state described by the table above.Draw the dynamic aggregate demand and aggregate supply diagram to illustrate the state of the economy in year 1 and year 2,assuming that no policy is pursued.Then illustrate and explain the appropriate fiscal policy to use in this situation.Assume that the policy results in the economy producing potential GDP.

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the president and the Congress to conduct contractionary fiscal policy.Briefly explain the condition of the economy and what the president and the Congress are attempting to do.

The multiplier effect is the series of ________ increases in ________ expenditures that result from an initial increase in ________ expenditures.

Figure 18-3 -Refer to Figure 18-3.In the graph above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Congress and the president?

Figure 18-10 -Refer to Figure 18-10.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?

If the economy is growing beyond potential real GDP,which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

If tax reduction and simplification are effective,then

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.

Figure 18-1 -Refer to Figure 18-1.Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from

Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the ________ effect.

Which of the following would be most likely to induce Congress and the president to conduct contractionary fiscal policy? A significant

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,approximately one-third took the form of ________ and two-thirds took the form of increases in ________.

The largest and fastest-growing category of federal government expenditures is

Double taxation refers to

Fiscal policy is determined by

Which of the following is an objective of fiscal policy?

If the tax multiplier is -1.5 and a $200 billion tax increase is implemented,what is the change in GDP,holding everything else constant? (Assume the price level stays constant.)

A cut in tax rates effects equilibrium real GDP through two channels: ________ disposable income and consumer spending,and ________ the size of the multiplier effect.