Exam 18: Fiscal Policy

Figure 18-11 -Refer to Figure 18-11.If government purchases increase by $100 billion and lead to an ultimate increase in aggregate demand as shown in the graph below,the difference in real GDP between point A and point B will be

Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?

How could the existence of an unemployment insurance system or other transfer programs have reduced the severity of the Great Depression?

If government increases taxes by the same amount it increases government spending,there will be no effect on aggregate demand: the increase in government spending is offset by an equal decrease in consumption spending by households.

For the federal deficit to be lowered

How does expansionary monetary policy increase spending in the economy compared to how expansionary fiscal policy increases spending in the economy?

President Bush lowered taxes on capital gains and dividends in 2003.Explain how this might increase aggregate supply.

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,an $840 billion package of spending increases and tax cuts that was

Expansionary fiscal policy is used to increase aggregate demand in an attempt to fight rising inflation.

The impact of crowding out may be the least

Figure 18-4 -Refer to Figure 18-4.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?

Why will there be less crowding out of private spending by government spending the less sensitive consumption,investment,and net exports are to changes in interest rates?

As the tax wedge associated with a given economic activity gets smaller,we would expect

From an initial long-run equilibrium,if aggregate demand grows more slowly than long-run and short-run aggregate supply,then Congress and the president would most likely

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.Economist Robert Barro argues that during wartime,the government purchases multiplier would be ________ the administration's estimate,and economists Lawrence Christiano,Martin Eichenbaum,and Sergio Rebelo argued that when short-term interest rates are near zero,the multiplier would be ________ the administration's estimate.

Table 18-4 Year Potential Real GDP Real GDP Price Level 2013 \ 14.0 trillion \ 14.0 trillion 150 2014 14.5 trillion 14.8 trillion 154 -Refer to Table 18-4.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 lower than if the Congress and the president had taken no action?

Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion.If the president and the Congress increased government purchases by $500 billion,what would be the result on the economy?

Describe the differences (in sign and relative magnitude)between the government purchases multiplier and the tax multiplier.

If the absolute value of the tax multiplier equals 1.6,real GDP is $13 trillion,and potential real GDP is $13.4 trillion,then taxes would need to be cut by ________ to restore the economy to potential real GDP.

List the five categories of federal government expenditures.