Exam 12: Fiscal Policy

Explain why proponents of supply-side effects of tax rate variations who also believe that tax-rate changes influence aggregate demand might claim that cuts in marginal income tax rates can potentially push up real Gross Domestic Product (GDP)without generating inflation.

In Country Z, the government simultaneously increases its expenditures by $25 billion and increases taxes by $25 billion. If the MPS is equal to 0.2, the government's action ________ real GDP by ________.

Suppose the government increases lump-sum taxes. This causes

Supply-side theory asserts that high marginal tax rates

In the traditional Keynesian model, if the government cuts taxes, then

According to the traditional Keynesian approach, if the government increases taxes, then

In the traditional Keynesian model, an increase in government spending raises total planned real expenditures by more than the original increase in government spending because

To close a recessionary gap through fiscal policy, the government should

The traditional Keynesian approach concludes that an increase in government spending

The traditional Keynesian approach to fiscal policy assumes

Fiscal policy involves discretionary changes in

Fiscal policy is implemented by

The crowding out effect is often associated with

The effect time lag is the time period that elapses

Three candidates for political office disagree over the benefits of enlarging the federal budget deficit. Candidate C says the stimulation package is needed to increase employment and real GDP; Candidate D says it will only cause higher prices; and Candidate F says it will have no effect on either real GDP or the price level. How do the three candidates differ with respect to the condition of the economy and the effects of fiscal policy?

What are direct expenditure offsets and how do they influence the effects of fiscal policy?

In January 2009, the President submitted a bill to Congress that was designed to stimulate the economy and increase employment. The legislation was passed in March 2009, and the spending occurred from June 2009 to September 2010. Consequently

In the short run, if the government attempts to increase aggregate demand, it should

When the government cuts taxes or increases government spending

According the traditional Keynesian approach, an increase in government spending is effective in raising real Gross Domestic Product (GDP)if