Exam 20: Fiscal Policy and Monetary Policy

"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.

Control of monetary policy rests with

How does a rise in the federal funds rate affect aggregate demand, real GDP, and the price level?

If the Fed raises the federal funds rate, which of the following happens?

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

As the Fed lowers the federal funds rate,

Government outlays (trillions of Tax revenue (trillions of Year 2005 dollars) 2005 dollars) 2008 0.75 0.80 2009 0.80 0.83 2010 0.87 0.86 2011 0.95 0.95 2012 1.06 1.02 The table above gives a nation's government outlays and tax revenue for 2008 through 2012. -During which years did the country have a budget deficit?

If government expenditure on goods and services increase by $100 billion, then aggregate demand

Automatic stabilizers

The supply-side effects show that a tax cut on labor income ________ employment and ________ potential GDP.

A country reports that its government outlays total $0.8 trillion and its tax revenues total $0.6 trillion. Does the country have a budget surplus or deficit and what is the surplus or deficit?

When the FOMC raises the federal funds rate, almost immediately ________ and a few weeks later the ________.

The Fed affects aggregate demand through monetary policy by changing

Automatic stabilizers are defined as

During the Great Depression, real GDP decreased, unemployment soared, and the inflation rate was negative. Which would have been the appropriate federal government policy combination to improve economic performance?

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

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

The FOMC is the

What are automatic stabilizers? How do they help stabilize real GDP?

"As long as supply-side effects are ignored, the balanced budget multiplier is equal to zero." Is the previous statement correct or incorrect? Define the balanced budget multiplier and then explain your answer.