Exam 12: Fiscal Policy

If real GDP exceeded potential real GDP and inflation was increasing, which of the following would be an appropriate fiscal policy?

Figure 12.9 Alt text for Figure 12.9: In figure 12.9, a graph comparing real GDP and price level. Long description for Figure 12.9: The x-axis is labelled, real GDP (trillions of 2007 dollars).The y-axis is labelled, price level.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.The area between lines SRAS1 and SRAS2 is indicated by a right pointing arrow.Line AD1 begins at the top left corner and slopes down toward the bottom center.Line AD2 follows the same slope as line AD1, but is plotted to the right.The area between lines AD1 and AD2 is indicated by a right pointing arrow.Line LRAS1 is perpendicular to the x-axis, ad begins from the x-axis value 1.60.Line LRAS2 is perpendicular to the x-axis, and begins from the x-axis value 1.64.The area between lines LRAS1 and LRAS2 is indicated by a right pointing arrow.Line LRAS1 intersects the lines AD1 and SRAS1 at point A (1.60, 125).Lines AD2 and SRAS2 intersect at point B (1.65, 130).Points A and B are connected to their respective coordinates on the x and y-axes with dotted lines. -Refer to Figure 12.9.Given that the economy has moved from A to B in the graph above, which of the following would be the appropriate fiscal policy to achieve potential GDP?

Identify each of the following as (i)part of an expansionary fiscal policy, (ii)part of a contractionary fiscal policy, or (iii)not part of fiscal policy. a.The personal income tax rate is lowered. b.Parliament cuts spending on defence. c.Students in post-secondary education are allowed to deduct tuition costs from their federal income taxes. d.The corporate income tax rate is lowered. e.The Province of Ontario builds a new tollway in an attempt to expand employment and ease traffic in Toronto.

The best time to correct a structural budget deficit is

If government spending is to be considered fiscal policy its objective must be

The majority of dollars spent by government prior to 1970 was spending at the ________ level.Since the 1970s, the majority of spending by government in Canada is spent at the ________ level.

Tax increases on business income decrease aggregate demand by decreasing

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

The government budget for the country of Economia is in surplus in 2019, and in deficit in the following year, 2020.We can conclude that

The federal budget deficit acts as an automatic stabilizer because

Illustrate and explain the effects of tax reduction and simplification using the dynamic aggregate demand and supply model.To simplify the analysis, assume that aggregate demand is not affected by the tax cut.

If the federal government wanted to counteract the effects of a recession, it could

What economic impact would the closing of a nearby government office have on a town? Would people and businesses that did not directly deal with the government employees or the government office be affected?

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium.For Year 2, graph aggregate demand, long-run aggregate supply, and short-run aggregate supply such that the condition of the economy will induce the federal government to conduct contractionary fiscal policy.Briefly explain the condition of the economy and what the federal government is attempting to do.

Figure 12.6 Alt text for Figure 12.6: In figure 12.6, a dynamic model of AD-AS. Long description for Figure 12.6: 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 in 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 the 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 (1.94, 104).Points A and B are connected to their respective coordinates on the x and y-axes with dotted lines.Line LRAS1 intersects the line SRAS2 below point A.Line LRAS2 intersects the lines SRAS1 and AD2 just above point B. -Refer to Figure 12.6.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, the federal government would most likely

Federal government expenditures, as a percentage of GDP,

The aggregate demand curve will shift to the left ________ the initial decrease in government purchases.

Crowding out refers to a decline in ________ as a result of an increase in ________.

Tax cuts on business income ________ aggregate demand.

Expansionary fiscal policy