Exam 12: Fiscal Policy

If government spending and the price level increase, then

The level of crowding out associated with a tax cut will be larger if the tax change has a supply-side effect than it will be if it only has a demand-side effect.

If the government purchases multiplier equals 2, and real GDP is $1.7 trillion with potential real GDP of $1.75 trillion, then government purchases would need to increase by ________ to restore the economy to potential real GDP.

The income tax system serves as an automatic stabilizer over the course of the business cycle.

Figure 12.1 Alt text for Figure 12.1: In figure 12.1, a graph comparing real GDP and price level. Long description for Figure 12.1: The x-axis is labelled, real GDP (trillions of 2007 dollars)and the y-axis is labelled, price level (CPI).5 lines are shown; AD1, AD2, AD3, LRAS, and SRAS1.Line AD1 begins in the top left corner and slopes down to the end of the x-axis.Line AD2 follows the same slope, but is plotted to the right.Similarly, line AD3 also has the same slope and is plotted to the right of AD2.Line SRAS1 begins close to the vertex and slopes up to the top right corner.Line LRAS is perpendicular to the x-axis, passing through points D, B, and E.Lines AD1 and SRAS1 intersect at point A.Lines AD2, LRAS, and SRAS1 intersect at point B.Lines AD3 and SRAS1 intersect at point C.Lines AD1 and LRAS intersect at point E.Lines AD3 and LRAS intersect at point D.The area between lines AD1 and AD2 is indicated by a right pointing arrow.The area between lines AD2 and AD3 is indicated by a right pointing arrow. -Refer to Figure 12.1.Suppose the economy is in short-run equilibrium above potential GDP and wages and prices are rising.If contractionary policy is used to move the economy back to long run equilibrium, this would be depicted as a movement from ________ using the static AD-AS model in the figure above.

Suppose real GDP is $1.6 trillion and potential GDP is $1.4 trillion.To move the economy back to potential GDP, the federal government should

Crowding out, following an increase in government spending, results from

By the time you're likely to start thinking about retirement,

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

The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.

As spending on government purchases increases, income rises and money demand falls.

The main economic objection to the austerity plan attached to the bailout of the Greek government during the global financial crisis was that

The total value of Government of Canada bonds outstanding equals

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?

Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP.

Following a decrease in government spending, as the price level falls we would expect the level of interest rates to ________ and investment to ________.

From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, the federal government would most likely

If the federal budget has an actual budget deficit of $35 billion and a cyclically adjusted budget deficit of $30 billion, then the economy

Figure 12.1 Alt text for Figure 12.1: In figure 12.1, a graph comparing real GDP and price level. Long description for Figure 12.1: The x-axis is labelled, real GDP (trillions of 2007 dollars)and the y-axis is labelled, price level (CPI).5 lines are shown; AD1, AD2, AD3, LRAS, and SRAS1.Line AD1 begins in the top left corner and slopes down to the end of the x-axis.Line AD2 follows the same slope, but is plotted to the right.Similarly, line AD3 also has the same slope and is plotted to the right of AD2.Line SRAS1 begins close to the vertex and slopes up to the top right corner.Line LRAS is perpendicular to the x-axis, passing through points D, B, and E.Lines AD1 and SRAS1 intersect at point A.Lines AD2, LRAS, and SRAS1 intersect at point B.Lines AD3 and SRAS1 intersect at point C.Lines AD1 and LRAS intersect at point E.Lines AD3 and LRAS intersect at point D.The area between lines AD1 and AD2 is indicated by a right pointing arrow.The area between lines AD2 and AD3 is indicated by a right pointing arrow. -Refer to Figure 12.1.Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued.Using the static AD-AS model in the figure above, this would be depicted as a movement from

Figure 12.1 Alt text for Figure 12.1: In figure 12.1, a graph comparing real GDP and price level. Long description for Figure 12.1: The x-axis is labelled, real GDP (trillions of 2007 dollars)and the y-axis is labelled, price level (CPI).5 lines are shown; AD1, AD2, AD3, LRAS, and SRAS1.Line AD1 begins in the top left corner and slopes down to the end of the x-axis.Line AD2 follows the same slope, but is plotted to the right.Similarly, line AD3 also has the same slope and is plotted to the right of AD2.Line SRAS1 begins close to the vertex and slopes up to the top right corner.Line LRAS is perpendicular to the x-axis, passing through points D, B, and E.Lines AD1 and SRAS1 intersect at point A.Lines AD2, LRAS, and SRAS1 intersect at point B.Lines AD3 and SRAS1 intersect at point C.Lines AD1 and LRAS intersect at point E.Lines AD3 and LRAS intersect at point D.The area between lines AD1 and AD2 is indicated by a right pointing arrow.The area between lines AD2 and AD3 is indicated by a right pointing arrow. -Refer to Figure 12.1.Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or monetary policy is pursued.Using the static AD-AS model in the figure above, this would be depicted as a movement from