Exam 16: Fiscal Policy

Illustrate and explain the effects of tax reduction and simplification using the dynamic aggregate demand and supply model.To simplify the analysis,assume that aggregate demand is not affected by the tax cut.

If we include consideration of potential effects of a proposed tax reduction and simplification on the labor supply,we would expect crowding out of investment and net exports brought about by the tax cut to be

Table 27-3 -Refer to Table 27-3.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 higher than if the Congress and the president had taken no action?

A government tax rebate of $1,000 would ________ your disposable income by ________.

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

The multiplier effect is the series of ________ increases in ________ expenditures that result from an initial increase in ________ expenditures.

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 ________ that was the largest fiscal policy action in U.S.history.

The government budget for the country of Economia is in surplus in 2011,and in deficit in the following year,2012. We can conclude the

Figure 27-8 -Refer to Figure 27-8.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

Figure 27-3 -Refer to Figure 27-3.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?

Consider the following statement,"The Federal Reserve fights recessions by increasing the money supply so people will have more money to spend." What is wrong with the statement and how can it be corrected?

The double taxation problem occurs because households pay taxes on dividends and capital gains from stock and they pay taxes on income.

Reducing the marginal tax rate on income will

The fastest growing category of government expenditure is

The federal government debt as a percentage of GDP did not rise

To complement actions by the Fed to reduce inflation,Congress and the President can cut spending and/or raise taxes.

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

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

The level of crowding out associated with a tax cut will be larger if the tax change has a supply-side effect than it will be if it only has a demand-side effect.

The federal government debt ________ when the federal government runs a deficit and ________ when the federal government runs a surplus.