Exam 12: Fiscal Policy

Recessions may actually reduce health care spending.

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 ________.

How can tax simplification be beneficial to the economy?

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

Federal government purchases, as a percentage of GDP,

Suppose the federal government increased spending by $10 billion and raised taxes by $10 billion to keep the budget balanced.What will happen to real equilibrium GDP?

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

Assuming a fixed amount of taxes and a closed economy, calculate the value of the government purchases multiplier, the tax multiplier, and the balanced budget multiplier if the marginal propensity to consume equals 0.5.

When does the Government of Canada borrow? Why would the government have to borrow more than it estimated? When would the government repay what it borrowed, and who is it repaying?

The multiplier effect refers to the series of

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

Consider a tax cut that affects not only consumer disposable income, but also after-tax earnings from labour supplied to labour markets and from financial assets acquired through saving.In the long run, we would expect this tax cut to

Three categories of federal government expenditures, in addition to government operations, are

If policy makers implement an expansionary fiscal policy but do not take into account the potential for crowding out, the new equilibrium level of GDP is likely to

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

Which of the following would be most likely to induce the federal government to conduct contractionary fiscal policy?

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

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2, does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

Figure 12.5 Alt text for Figure 12.5: In figure 12.5, a dynamic model of AD-AS. Long description for Figure 12.5: The x-axis is labelled, real GDP (trillions of 2007 dollars).The y-axis is labelled, price level (CPI).6 lines are shown; SRAS1, SRAS2, AD1, AD2, LRAS1, and LRAS2.Line SRAS1 begins in the bottom left corner and slopes up to the top right corner.Line SRAS2 follows the same slope as line SRAS1, but is plotted to the right.Line AD1 begins at the top left corner and slopes down to the bottom center.Line AD2 follows the same slope as line AD1, but is plotted to the right.Line LRAS1 is perpendicular to the x-axis, and begins from the x-axis value 1.7.Line LRAS2 is perpendicular to the x-axis, and begins from x-axis value 1.9.Line LRAS1 intersects lines AD1 and SRAS1 at point A (1.7, 100).Lines AD2 and SRAS2 intersect at point B (1.86, 102).Points A and B are connected to their respective coordinates on the x and y-axes with dotted lines.Line LRAS2 intersects the lines SRAS1 and SRAS2 near the top end of these lines.Line LRAS2 intersects the lines AD1 and AD2 near the bottom end of these lines. -Refer to Figure 12.5.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, and no fiscal or monetary policy is pursued, then at point B

As a percentage of GDP, government expenditures ________ from 1960 to the early 1990s, ________ from 1992 to 2008, and have ________ since 2008.