Exam 13: Fiscal Policy

Federal government expenditure as a proportion of GDP in Australia between 1980 and 2010 has varied between:

Reducing taxes by a specific fixed amount will usually:

Consider the hypothetical information in the following table for potential GDP, real GDP and the price level in 2017 and in 2018 if the government does not use fiscal policy. If the government wants to keep real GDP at its potential level in 2014, it should:

Tax increases on business income slow down the rate of increase in aggregate demand by decreasing:

Policy-makers in the 1960s believed that there was a structural relationship between unemployment and inflation. This meant that the cost of lower unemployment was a:

If expectations of the inflation rate exceed the actual inflation rate, then:

Government purchases and transfer payments are included in the measure of government expenditures.

The tax multiplier:

Increases in government spending result in ________ in the short run, and permanent increases in government spending result in ________ in the long run.

Assuming a fixed amount of taxes and a closed economy, calculate the value of the government purchases multiplier, the tax multiplier, and the balanced budget multiplier if the marginal propensity to consume equals 0.75. _____________________________________________________________________________________________ _____________________________________________________________________________________________

An appropriate fiscal policy response when aggregate demand is growing at a faster rate than aggregate supply is to increase interest rates.

A decrease in individual income taxes ________ disposable income, which ________ consumption spending.

Borrowing to pay for long-term capital expenditures makes sense as the benefits are received:

As the tax wedge between pre-tax and post-tax returns for an economic activity gets larger, we would expect:

An increase in government spending may expedite recovery from a recession in the short run, but in the long run, this policy may:

Which of the following would be considered a fiscal policy action?

The largest source of revenue for the Australian federal government is:

If the federal budget has an actual budget surplus of $75 billion, but a structural budget surplus of $50 billion, then the economy must be above potential GDP.

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

Countries with a ________ marginal propensity to import will have ________ government purchase multipliers.