Exam 16: Fiscal Policy

Tax reduction and simplification should ________ long-run aggregate supply and ________ aggregate demand.

An equal increase in government purchases and taxes will cause

During the twentieth century,the largest budget deficits as a percentage of GDP occurred

To combat a recession with discretionary fiscal policy,Congress and the president should

Figure 27-9 -Refer to Figure 27-9.An increase in government purchases of $200 billion causes aggregate demand to shift ultimately from AD₁ to AD₂.Assuming a constant price level,the difference in real GDP between point A and point B will be ________ $200 billion.

Figure 27-1 -Refer to Figure 27-1.In the graph above,if the economy is at point A,an appropriate fiscal policy by the Congress and the president would be to

Assume a closed economy,that taxes are fixed,and the marginal propensity to consume is equal to 0.8. What is the government spending multiplier?

The cyclically adjusted budget deficit calculates the budget surplus or deficit at

Which of the following is the largest category of federal government expenditures?

To combat inflation,Congress and the president should

During recessions,government expenditure automatically

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability,high rates of economic growth,and high employment.

Suppose the government wants to maintain a balanced budget. To achieve this goal,when the economy falls into recession government would need to ________ taxes,which would cause aggregate demand to ________.

In an open economy,the government purchases multiplier will be

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

If tax reduction and simplification are effective,then

How does expansionary monetary policy increase spending in the economy compared to how expansionary fiscal policy increases spending in the economy?

If the absolute value of the tax multiplier equals 1.6,real GDP is $13 trillion,and potential real GDP is $13.4 trillion,then taxes would need to be cut by ________ to restore the economy to potential real GDP.

Identify each of the following as (i)part of an expansionary fiscal policy,(ii)part of a contractionary fiscal policy,or (iii)not part of fiscal policy. a.The personal income tax rate is lowered. b.Congress cuts spending on defense. c.College students are allowed to deduct tuition costs from their federal income taxes. d.The corporate income tax rate is lowered. e.The state of Nevada builds a new tollway in an attempt to expand employment and ease traffic in Las Vegas.

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.8,the tax rate is 0.1,and the marginal propensity to import equals 0.2.