Exam 13: Fiscal Policy

An equal decrease in government purchases and taxes will cause:

If a(n)________________ in government purchases leads to a(n)____________ in interest rates, the effect is called crowding out.

If policy makers implement expansionary fiscal policy and do not take into account crowding out, equilibrium GDP is likely to:

In the case of an upward-sloping aggregate supply curve, the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

Suppose that the nominal wage, the expected and actual price levels, and the expected and actual inflation rates for a hypothetical economy in 2016 are presented in the following table. What is the actual real wage rate in 2016?

Crowding out results in:

Refer to Figure 13.1 for the following questions. Figure 13.1 -If the economy moves from A to B in Figure 13.1, which of the following would be the appropriate fiscal policy to achieve potential GDP?

Refer to Figure 13.6 for the following questions. Figure 13.6 -Suppose the federal government reduces income taxes. Assume that the movement from A to B in Figure 13.6 represents normal growth in the economy before the tax change. Also assume that aggregate demand does not change. If the tax change is effective and labour supply and savings increase because of the tax change, then the tax change will:

Assume that the federal government gives a $5 billion tax cut. Assume that tax rates are fixed, the economy is closed, and the marginal propensity to consume is 0.75. What happens to equilibrium GDP?

Suppose that the federal budget is balanced when GDP is at potential GDP. If equilibrium GDP falls below potential:

Reducing the marginal tax rate on individual income will:

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

What is 'fiscal policy' and who is responsible for fiscal policy? _____________________________________________________________________________________________ _____________________________________________________________________________________________

What is 'long-run crowding out'? _____________________________________________________________________________________________ _____________________________________________________________________________________________

The government purchases multiplier is defined as:

If tax reduction and simplification are effective, then:

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

Consider the hypothetical information in the following table for potential GDP, real GDP and the price level in 2016 and in 2017 if the government does not use fiscal policy. If the government wants control inflation while keeping real GDP at its potential level in 2017, it should:

'Fiscal policy' refers to the:

Increases in government spending will lower the long-term growth rate of GDP if it lowers ________ spending and the government purchases ________ goods and not ________ goods.