Exam 18: Fiscal Policy

Tax cuts on business income ________ aggregate demand.

To evaluate the size of the federal budget deficit or surplus over time,it would be best to look at the

Historically,the largest U.S.federal budget deficits as a percentage of GDP in the 20th century occurred during

Suppose that the current equilibrium GDP is $14.5 trillion and that potential GDP is $14.3 trillion.Will decreasing government purchases by $200 billion,or raising taxes by $200 billion,restore the economy to potential GDP? Explain.

The growth rate of real GDP equals

Government transfer payments include which of the following?

An increase in individual income taxes ________ disposable income,which ________ consumption spending.

Fiscal policy is determined by

Raising taxes on interest and dividend income will increase the level of investment and economic growth.

In 2017,the Congressional Budget Office forecast that which of the following would have the lowest average annual growth rate for the years 2017-2027?

Government deficits tend to increase during

A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand.

If Congress wanted to counteract the effects of a recession it could

The budget deficit increases during wars and recessions.

The problem typically during a recession is not that there is too little money,but too little spending.If the problem was too little money,what would be its cause? If the problem was too little spending,what could be its cause?

The cyclically adjusted budget is calculated at potential GDP.

Figure 18-1 -Refer to Figure 18-1.Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium.Using the basic AD-AS model in the figure above,this would be depicted as a movement from

Figure 18-5 -Refer to Figure 18-5.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,and no fiscal or monetary policy is pursued,then at point B

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

In November 2017, the House Ways and Means Committee announced a tax reform bill which includes hundreds of changes to the tax code. Overall, the tax plan represents a move in the direction of greater neutrality and global competitiveness. Following are eight of the most important provisions in the tax bill. 1. The corporate tax rate would be reduced to 20 percent. 2. Pass-through business income would be taxed at a maximum rate of 25 percent. 3. Some disincentives to investment would be rolled back. 4. The country would move to a territorial tax system. 5. Many itemized deductions would be eliminated. 6. The estate tax would be repealed. 7. The tax treatment of interest would change. 8. Tax expenditures would be curtailed. Source: Jared Walczak and Amir El-Sibaie, "Eight Important Changes in the Tax Cuts and Jobs Act," taxfoundation.org, November 2, 2017. -Refer to the Article Summary.The repeal of the estate tax would increase the posttax return to saving,causing a(n)________ in the supply of loanable funds and a(n)________ in investment spending.