Exam 18: Fiscal Policy

What is expansionary fiscal policy? What is contractionary fiscal policy?

Expansionary fiscal policy will

Explain why the timing of fiscal policy may be more difficult than the timing of monetary policy.

When President Obama took office in January 2009,he pledged to pursue an expansionary fiscal policy to try to pull the economy out of the recession.The next month,Congress passed the American Recovery and Reinvestment Act of 2009,an $840 billion package of spending increases and tax cuts that was

If the economy is falling below potential real GDP,which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

The fastest growing category of government expenditure is

The tax multiplier

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the president and Congress to conduct expansionary fiscal policy.Briefly explain the condition of the economy and what the president and Congress are attempting to do.

Table 18-5 Year Potential Real GDP Real GDP Price Level 1 \ 10.2 trillion \ 10.2 trillion 100 2 10.8 trillion 10.6 trillion 103 -Refer to Table 18-5.The economy is in the state described by the table above.Draw the dynamic aggregate demand and aggregate supply diagram to illustrate the state of the economy in year 1 and year 2,assuming that no policy is pursued.Then illustrate and explain the appropriate fiscal policy to use in this situation.Assume that the policy results in the economy producing potential GDP.

Vulcan Materials stock price soared in the days following the election of President Trump.Vulcan's products,such as asphalt and concrete,are used in construction and President Trump had pledged to bring about increased spending on infrastructure projects that would require such products.Spending on infrastructure projects is an example of ________ aimed at increasing real GDP and employment.

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion.To move the economy back to potential GDP,Congress should

During most of the years of the Great Depression,the actual federal budget was in ________,and the cyclically adjusted budget was in ________.

The multiplier effect is the series of ________ increases in ________ expenditures that result from an initial increase in ________ expenditures.

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.This indicates that a ________ increase in government purchases would increase equilibrium real GDP by $157 billion

Figure 18-6 -Refer to Figure 18-6.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,Congress and the president would most likely

Suppose real GDP is $14 trillion and potential real GDP is $14.4 trillion.An increase in government purchases of $400 billion would cause real GDP to ________ potential real GDP (assuming a constant price level).

A tax rebate,like the one issued in 2008,is likely to ________ consumption spending ________ than would a permanent tax cut.

A change in tax rates

Which of the following would be considered a fiscal policy action?

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase ________ through changing ________.