Exam 16: Fiscal Policy

If federal taxes are cut by $10 billion, aggregate demand

"Discretionary fiscal policy is a fiscal action initiated by an act of the Federal Reserve, while automatic fiscal policy is a fiscal action induced by the state of the economy." Is the previous statement correct or incorrect? Explain your answer.

If government expenditure increases by $200 billion and taxes simultaneously increase by $200 billion, then aggregate demand

President Reagan often stated he preferred supply side policies.Which of the following federal government policies would be considered supply side? i. decrease the quantity of money ii. lower taxes iii. lower the interest rate.

In the labor market, the income tax creates a tax wedge which raises the ________ wage rate, reduces the ________ wage rate, and ________ employment.

An income tax hike

If an economy is in an equilibrium with an inflationary gap, policy-makers can use

"As the saying goes, the only sure things in life are death and taxes.This saying points out the result that everything having to do with taxes is an automatic fiscal policy." Is the preceding analysis correct or incorrect? Explain your answer.

If the economy has been producing at a point where real GDP is less than potential GDP, what fiscal policy can the federal government use to restore real GDP to potential GDP?

If a tax cut increases people's labor supply, then

When the government's expenditures exceed its tax revenue, the budget

When an economy faces an inflationary gap, an appropriate fiscal policy is to

The figure above shows an economy's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the ________ gap is one trillion dollars. To close the gap, the government can change expenditure by ________ one trillion dollars.

An economy is experiencing a recession and policy makers are considering using discretionary fiscal policy to eliminate the recessionary gap.What are the four limitations that policymakers face when using discretionary fiscal policy? Briefly discuss each.

The supply-side effects of an income tax cut ________ potential GDP and ________ aggregate supply.

Which of the following is an example of a discretionary fiscal policy action?

The magnitude of the tax multiplier is ________ the magnitude of the government expenditure multiplier.

Explain four reasons why it is difficult to use discretionary fiscal policy to eliminate a deflationary or inflationary gap.

An increase in government expenditure can ________ potential GDP and an increase in taxes can ________ potential GDP.

Discuss the federal budget history of the United States since 1970.Make sure to note specifically the budget position of the United States during the last of the 1990s and compare it to the situation in 2010.