Exam 16: Fiscal Policy

Of the $825 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,the largest tax cuts occurred in which category?

Expansionary fiscal policy will

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

Table 27-5 -Refer to Table 27-5.The economy is in the state described by the table above.Draw the dynamic aggregate demand and aggregate supply diagram to illustrate the state of the economy in year 1 and year 2,assuming that no policy is pursued.Then illustrate and explain the appropriate fiscal policy to use in this situation.Assume that the policy results in the economy producing potential GDP.

The government purchases multiplier is defined as

An appropriate fiscal policy response when aggregate demand is growing at a faster rate than aggregate supply is to decrease the money supply.

Give an example of an automatic stabilizer.Explain how automatic stabilizers work in the case of recession.

Table 27-1 -Refer to Table 27-1.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 want to keep real GDP at its potential level in 2014,they should

Consider a tax cut which affects not only consumer disposable income,but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving.In the long run we would expect this tax cut to

When does the Treasury Department borrow? Why would the Treasury have to borrow more than it estimated? When would the Treasury repay what it borrowed,and who is it repaying?

Suppose that Congress allocates $1 billion to clean up after the hurricanes of 2005.It also raises taxes by $1 billion to keep the deficit from growing.If the marginal propensity to consume is 0.9,what is the effect on equilibrium GDP?

Explain why the timing of fiscal policy may be more difficult than the timing of monetary policy.

if government spending and the price level increase,then

It is ________ difficult to effectively time fiscal policy than monetary policy because ________.

Expansionary fiscal policy is used to increase aggregate demand in an attempt to fight rising inflation.

As the tax wedge associated with a given economic activity gets smaller,we would expect

Accumulating debt poses a problem for the U.S.federal government because

If Congress wanted to counteract the effects of a recession it could

________ and ________ are the largest sources of revenue collected by the federal government.

Figure 27-7 -Refer to Figure 27-7.In the graph above,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the Congress and the president use to move the economy to point C?