Exam 18: Fiscal Policy

In absolute value,the tax multiplier is greater than the government purchases multiplier.

Crowding out,following an increase in government spending,results from (the exchange rate is the foreign exchange price of the domestic currency)

The crowding out of private spending by government spending will be greater the

An increase in the sensitivity of private spending (consumption,investment,and net exports)to changes in the interest rate ________ the government purchases multiplier.

If the government purchases multiplier equals 2,and real GDP is $14 trillion with potential real GDP $14.5 trillion,then government purchases would need to increase by ________ to restore the economy to potential real GDP.

Figure 18-1 -Refer to Figure 18-1.Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or monetary policy is pursued.Using the basic AD-AS model in the figure above,this would be depicted as a movement from

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

Borrowing to pay for long-lived capital expenditures makes sense as

Lowering the individual income tax rate will increase household disposable income and consumption spending.

Figure 18-11 -Refer to Figure 18-11.If government purchases increase by $100 billion and lead to an ultimate increase in aggregate demand as shown in the graph,the difference in real GDP between point A and point B will be

If real equilibrium GDP is above potential GDP,expansionary fiscal policy should be pursued.

From the 1960s to 2016,transfer payments

Why will there be less crowding out of private spending by government spending the less sensitive consumption,investment,and net exports are to changes in interest rates?

Which of the following would increase the size of the government purchases multiplier?

Suppose Political Party A proposes a tax cut on business income to stimulate the economy.Political Party B opposes the tax cut on business income asserting that it would only help businesses,not the average working man and woman.If you were hired as an economist for Political Party A,explain how the tax cut on business income would help the average working man and woman.

Social Security

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.A reduction in the corporate tax rate to 20 percent would ________ the return corporations receive from new investments in equipment and factories,and this would ________ aggregate supply.

What is meant by crowding out? Explain the difference between crowding out in the short run and in the long run.

Which of the following best describes supply-side economics?

Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?