Exam 16: Fiscal Policy

As spending on government purchases increases,income rises and money demand falls.

The aggregate demand curve will shift to the right ________ the initial increase in government purchases.

Federal government purchases,as a percentage of GDP,

The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of

The federal government debt equals

An increase in individual income taxes ________ disposable income,which ________ consumption spending.

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

An increase in the tax wedge associated with a given economic activity will decrease the level of that activity.

A tax rebate,like the one issued in 2008,is likely to ________ consumption spending ________ than would a permanent tax cut.

The multiplier effect refers to the series of

What is expansionary fiscal policy? What is contractionary fiscal policy?

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

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.)

Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?

If real equilibrium GDP is above potential GDP,expansionary fiscal policy should be pursued.

The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because

A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand.

Assume a closed economy with fixed taxes and the marginal propensity to consume is equal to 0.9.What is the government spending multiplier?

Table 27-1 -Refer to Table 27-1.Suppose the economy is in the state described by the table above.What problem will occur in the economy if no policy is pursued? What fiscal policy tools could be used to combat the problem? Draw a dynamic aggregate demand and aggregate supply diagram to illustrate the appropriate fiscal policy to use in this situation.

Figure 27-3 -Refer to Figure 27-3.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,and no fiscal or monetary policy is pursued,then at point B