Exam 16: Fiscal Policy

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,a $787 billion package of spending increases and tax cuts that was

An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

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.

Refer to Figure 27-1.Suppose the economy is in a recession and expansionary fiscal policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from

In a closed economy with fixed or autonomous (non-income dependent)taxes,the balanced budget government purchases multiplier is negative.

Part of the spending on the Caldecott Tunnel project in northern California came from the American Reinvestment and Recovery Act,which is an example of ________ aimed at increasing real GDP and employment.

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

An increase in the sensitivity of private spending (consumption,investment,and net exports)to changes in the interest rate ________ the government purchases multiplier.

Which of the following best describes supply-side economics?

Assume a country is required by law to balance the budget every year.Suppose aggregate demand falls,causing a recession and a budget deficit.To balance the budget,what would the government need to do with the level of government spending and taxes? How would these changes in government spending and taxes affect aggregate demand and the economy?

In the long run,most economists agree that a permanent increase in government spending leads to

The income tax system serves as an automatic stabilizer over the course of the business cycle.

Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.

Historically,the largest U.S.federal budget deficits as a percentage of GDP in the 20th century occurred during

Refer to Figure 27-1.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

The Congressional Budget Office estimates of the effects of the 2009 stimulus package indicate that the stimulus package caused real GDP to equal potential GDP in 2011.

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 0.5.

The government purchases multiplier will be larger if the marginal income tax rate decreases.

Which of the following is a reason why we should consider the federal national debt a problem?

Suppose the government spending multiplier is 2.The federal government cuts spending by $40 billion.What is the change in GDP if the price level is not held constant?