Exam 12: Fiscal Policy

-Refer to the above figure. Suppose that the economy starts at AD₁. If the government reduces taxes, then the economy goes to AD₂, but then falls back to AD₁. This is an example of

According to the traditional Keynesian analysis, if the government increases spending by $10 million, then

The Ricardian equivalence theorem states that

Whenever government spending is a substitute for private spending

Which one of the following is an example of discretionary fiscal policy used to correct a recessionary gap?

Supply-side economics

A problem with using fiscal policy to fine-tune the economy is that

According to the Ricardian equivalence theorem, budget deficits resulting from tax cuts

What are the automatic stabilizers the United States has in place, and how do they function differently from discretionary fiscal policy?

Suppose that real GDP is initially $14 trillion and the government attempts to increase real GDP to $15 trillion. The marginal propensity to consume is 0.8, and every $1.00 increase in real government spending crowds out $0.50 in real planned investment expenditures. Which increase in government spending below could yield the desired level of real GDP?

-Refer to the above figure. A budget deficit occurs when real national income is

Many government programs, such as unemployment compensation, operate on a deficit during recessions and a surplus during periods of economic expansion. The programs are referred to as

-Refer to the above figure. Suppose that the economy initially is operating along AD₁. If the government seeks to close the recessionary gap by raising government spending without any change in taxation, which moves the aggregate demand curve from AD₁ to AD₂, then to AD₃. Which of the following scenarios is TRUE?

A direct expenditure offset occurs when an increase in government spending

-Refer to the above figure. If the economy is currently operating at point C, then there is

A decrease in taxes will have no effect on real GDP if

The government has decided to give every person in the U.S. a $5 coupon that they can use at the grocery store to purchase their choice of cheese. We would expect this policy to lead to

Suppose the economy is experiencing a recessionary gap at the current level of GDP. Which of the following fiscal policy actions would be most appropriate given this recessionary gap?

Discretionary fiscal policy is so named because it

According to supply-side economics, changes in marginal tax rates will have which of the following effects?