Exam 12: Fiscal Policy

If the absolute value of the tax multiplier equals 1.6, real GDP is $1.3 trillion, and potential real GDP is $1.34 trillion, then taxes would need to be cut by ________ to restore the economy to potential real GDP.

An increase in individual income taxes ________ disposable income, which ________ consumption spending.

Recessions are bad for all aspects of personal health.

Suppose real GDP is currently $1.25 trillion and potential real GDP is $1.3 trillion.If the federal government increased government purchases by $50 billion, what would be the result on the economy?

Table 12.6 -Refer to Table 12.6.The economy is in the state described by the table above.Draw the dynamic aggregate demand and aggregate supply diagram to illustrate the state of the economy in year 1 and year 2, assuming that no policy is pursued.Then illustrate and explain the appropriate fiscal policy to use in this situation.Assume that the policy results in the economy producing potential GDP.

The cyclically adjusted budget is calculated at potential GDP.

The largest Canadian federal budget deficits as a percentage of GDP in the last 50 years occurred during

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

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

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 automatic stabilizers move the economy back to long-run equilibrium.Using the static AD-AS model in the figure above, this would be depicted as a movement from

In the 2015 federal election campaign the current federal government promised more ________ aimed at increasing real GDP and employment.

The federal government increased income tax deductions (effectively lowered taxes)in 2009.Explain how this might increase aggregate supply.

An appropriate fiscal policy response when aggregate demand is growing at a faster rate than aggregate supply is to decrease the money supply.

Figure 12.2 Alt text for Figure 12.2: In figure 12.2, a graph comparing real GDP and price level. Long description for Figure 12.2: The x-axis is labelled, real GDP (trillions of 2007 dollars)and the y-axis is labelled, price level (CPI).3 lines are shown; AD, LRAS, and SRAS.Line AD begins at the top left corner and slopes down to the end of the x-axis.Line SRAS begins near the bottom left corner and slopes up to the top right corner.Line LRAS is perpendicular to the x-axis, and intersects lines AD and SRAS at point A. -Refer to Figure 12.2.In the graph above, if the economy is at point A, an appropriate fiscal policy by the federal government would be to

Many economists who would normally argue against government spending increases due to "crowding out" were in favour of the large economic stimulus announced in 2009.Why would these economists change their mind?

Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.9, the tax rate equals 0.25, and the marginal propensity to import equals 0.15.

Suppose real GDP is $1.7 trillion, potential real GDP is $1.75 trillion, and the federal government plans to use fiscal policy to restore the economy to potential real GDP.Assuming a constant price level, the federal government would need to decrease taxes by

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

The problem causing most recessions is too little

Double taxation refers to