Exam 18: Fiscal Policy

Table 18-4 Year Potential Real GDP Real GDP Price Level 2018 \ 18.0 trillion \ 18.0 trillion 150 2019 18.5 trillion 18.8 trillion 154 -Refer to Table 18-4.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2018 and in 2019 if Congress and the president do not use fiscal policy.If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2019,which of the following will be lower than if Congress and the president had taken no action?

A law requiring the government to balance its budget in each year would serve as an automatic destabilizer.

The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of

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 pursue

Suppose the federal budget deficit for the year was $100 billion and the economy was in a recession.If the economy had been at potential GDP,it is estimated that tax revenues would have been $60 billion higher and government spending on transfer payments $50 billion lower.Using these estimates,the cyclically adjusted budget

If policymakers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to

Figure 18-2 -Refer to Figure 18-2.In the graph above,if the economy is at point A,an appropriate fiscal policy by Congress and the president would be to

The use of fiscal policy to stabilize the economy is limited because

Give an example of an automatic stabilizer.Explain how automatic stabilizers work in the case of recession.

During recessions,government expenditure automatically

Figure 18-1 -Refer to Figure 18-1.Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to 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

In the long run,most economists agree that a permanent increase in government spending leads to ________ crowding out of private spending.

Which of the following would be most likely to induce Congress and the president to conduct contractionary fiscal policy? A significant

The government purchases multiplier is defined as

Which of the following is an example of discretionary fiscal policy?

If real GDP exceeded potential real GDP and inflation was increasing,which of the following would be an appropriate fiscal policy?

Increases in government spending result in ________ in the short run,and permanent increases in government spending result in ________ in the long run.

An increase in government spending increases the supply of money in our economy.

The Congressional Budget Office estimates the size of the government purchases multiplier to be

From an initial long-run equilibrium,if aggregate demand grows faster than long-run and short-run aggregate supply,then Congress and the president would most likely