Exam 12: Fiscal Policy

Crowding out refers to a decrease in government purchases as a result of an increase in private expenditures.

The crowding out of private spending by government spending will be greater the

Describe the differences (in sign and relative magnitude)between the government purchases multiplier and the tax multiplier.

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

Suppose that the current equilibrium GDP is $1.85 trillion and that potential GDP is $1.83 trillion.Will decreasing government purchases by $20 billion, or raising taxes by $20 billion, restore the economy to potential GDP? Explain.

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 ________.

In the case of an upward-sloping aggregate supply curve, the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

Prior to the 1970s, the majority of dollars spent by government was spent at the provincial and local levels.

If the tax multiplier is -1.5 and a $20 billion tax increase is implemented, what is the change in GDP, holding everything else constant? (Assume the price level stays constant.)

The case for austerity is different in Canada than in Greece because

In the long run, most economists agree that a permanent increase in government spending leads to

In 2009, the federal government introduced Canada's Economic Action Plan an expansionary fiscal policy to try to pull the economy out of the recession, which was

Table 12.4 -Refer to Table 12.4.Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2017 and in 2018 if the federal government does not use fiscal policy.If the federal government uses fiscal policy successfully to keep real GDP at its potential level in 2018, which of the following will be higher than if the federal government had taken no action?

Assume that in 2019 aggregate demand in Canada begin to grow much faster than aggregate supply. What policy would you recommend to Parliament?

Table 12.2 -Refer to Table 12.2.Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2017 and in 2018 if the federal government does not use fiscal policy.If the federal government wants to keep real GDP at its potential level in 2018, it should

Since 1965, the largest federal budget deficit (as a percentage of GDP)occurred

Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?

The tax wedge is the difference between the

As the tax wedge associated with a given economic activity gets smaller, we would expect

In preparing their estimates of the economic impact of a new football stadium in the City of Regina, proponents argued that building the stadium would create twice as much economic activity in the city as the stadium was projected to cost (essentially arguing that the local multiplier was 2).This is likely to be an overestimate of the multiplier because