Exam 16: Fiscal Policy

Social Security

If the federal budget has an actual budget surplus of $75 billion,but a cyclically adjusted budget surplus of $50 billion,then the economy must be above potential real GDP.

Figure 27-4 -Refer to Figure 27-4.Given that the economy has moved from A to B in the graph above,which of the following would be the appropriate fiscal policy to achieve potential GDP?

A(n)________ in private expenditures as a result of a(n)________ in government purchases is called crowding out.

Following a decrease in government spending,as the price level falls we would expect the level of interest rates to ________ and investment to ________.

If policy makers implement an expansionary fiscal policy but do not take into account the potential for crowding out,the new equilibrium level of GDP is likely to

In the case of an upward-sloping aggregate supply curve,the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Decreasing government spending ________ the price level and ________ equilibrium real GDP.

A cut in tax rates effects equilibrium real GDP through two channels: ________ disposable income and consumer spending,and ________ the size of the multiplier effect.

The federal budget was in deficit from 1931 to 1939,except in the year 1937.Given this fact,how do you explain E.Cary Brown's statement,"Fiscal policy,then,seems to have been an unsuccessful recovery device in the 'thirties-not because it did not work,but because it was not tried."

Suppose President Obama is successful in passing a $5 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.75.What happens to equilibrium GDP?

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

Cutting taxes

The majority of dollars spent by government prior to the Great Depression was spending at the ________ level. In the post World War II period,two-thirds to three quarters of all dollars spent by government in the United States are spent at the ________ level.

Suppose real GDP is $13 trillion,potential real GDP is $13.5 trillion,and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP.Assuming a constant price level,Congress and the president would need to decrease taxes by

Included in government expenditures are government purchases and transfer payments.

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

If the economy is growing beyond potential real GDP,which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Poorly timed discretionary policy can do more harm than good.Getting the timing right with fiscal policy is generally