Exam 18: Fiscal Policy

Economists who believe the supply-side effects of tax cuts are small essentially believe that

Some economists argue that the federal government should normally run a deficit at potential GDP,with the borrowed funds applied to

To complement actions by the Fed to reduce inflation,Congress and the President can cut spending and/or raise taxes.

If government increases taxes by the same amount it increases government spending,there will be no effect on aggregate demand: the increase in government spending is offset by an equal decrease in consumption spending by households.

Suppose real GDP is $13 trillion and potential real GDP is $13.5 trillion.If Congress and the president increase government purchases by $500 billion,then the economy will be brought to equilibrium at potential real GDP.

The automatic budget surpluses and budget deficits that occur in the federal budget over the business cycle

To combat inflation,Congress and the president should

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 ________.

An increase in government spending may expedite recovery from a recession in the short run,but in the long run this policy may

How does expansionary monetary policy increase spending in the economy compared to how expansionary fiscal policy increases spending in the economy?

An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,approximately one-third took the form of ________ and two-thirds took the form of increases in ________.

Figure 18-9 -Refer to Figure 18-9.Given that the economy has moved from point A to point B in the graph above,which of the following would be the appropriate fiscal policy to achieve potential GDP?

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

An equal increase in government purchases and taxes will cause

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Which of the following is a government expenditure,but is not a government purchase?

The Trump administration hopes to expand apprenticeship programs that provide skills needed by workers.This would ________ the employment-population ratio,which would increase ________.

The federal government debt ________ when the federal government runs a deficit and ________ when the federal government runs a surplus.

The federal budget exhibited a $128.7 billion surplus in 2001 but moved to a deficit of $157.8 billion in 2002.Some argued the deficit was opened up because of the Bush 2001 tax cuts,but others argued that the deficit grew because of the recession suffered in 2001.Evaluate the validity of the second argument.