Exam 16: Fiscal Policy

The use of discretionary fiscal policy is hampered by i. difficulty of estimating the level of potential GDP. Ii) lack of accuracy of economic forecasts. Iii) the small impact tax cuts and increases in government expenditure have on aggregate demand.

Which of the following taxes can slow the growth rate of real GDP? i. A tax on labor income ii. A tax on consumption expenditure iii. A tax on interest income

Country A Government outlays Tax revenue (trillions of (trillions of Year 2005 dollars) 2005 dollars) 2005 0.75 0.80 2006 0.80 0.83 2007 0.87 0.86 2008 0.95 0.95 2009 1.06 1.02 Country B Government outlays Tax revenue (trillions of (trillions of Year 2005 dollars) 2005 dollars) 2005 1.05 1.10 2006 0.90 0.92 2007 0.87 0.88 2008 0.85 0.83 2009 0.70 0.75 -The above table gives the government outlays and tax revenue from 2005 through 2009 for two countries.In 2008 country A had a ________ and country B had a ________.

The federal budget is defined as

The quantity of employment is determined in the ________ market and that quantity, along with the ________, determines potential GDP

Government outlays (trillions of Tax revenues (trillions of Year 2005 dollars) 2005 dollars) 2005 0.75 0.80 2006 0.80 0.83 2007 0.87 0.86 2008 0.95 0.95 2009 1.06 1.02 -The above table gives a country's government outlays and tax revenue for 2005 through 2009.During which years did the country have a balanced budget, budget surplus, and budget deficit?

The ________ view says that fiscal stimulus has a multiplier effect that makes it a ________ tool to fight a deep recession.

Suppose there is a $200 billion recessionary gap.If there are no taxes or imports, to restore the economy back to potential GDP, how much should government expenditure be changed if the marginal propensity to consume is 0.75? Does government expenditure need to be increased or decreased?

If the nominal interest rate is 10 percent, the inflation rate is 6 percent, and the tax rate on interest income is 25 percent, what is the after-tax real interest rate?

If the government increases expenditure by $40 billion and increases tax receipts by $40 billion, what is the impact on aggregate demand? Explain your answer.

What is the effect on aggregate demand and the AD curve from either an increase in government expenditure or a cut in taxes?

As contrasted to the Keynesian view, mainstream economists believe that ________ than Keynesian economists believe.

If fiscal stimulus creates a large budget ________, then in the long run economic growth ________.

Automatic changes in tax revenues and expenditures that occur as a result of fluctuations in real GDP are referred to as automatic

Government expenditure ________ change potential GDP and taxes ________ change potential GDP.

To eliminate a recessionary gap, what fiscal policy should the government pursue?

When tax revenue exceed the government's outlays, the budget

What are automatic stabilizers? How do they affect the budget deficit and/or budget surplus during a recession and during an expansion?

An example of fiscal stimulus policy is

A reason why discretionary fiscal policy might move the economy away from potential GDP instead of toward potential GDP is that