Exam 13: Fiscal Policy

-Refer to the above figure. Suppose the economy is at E and the government uses an expansionary fiscal policy to move the aggregate demand curve to . In the end, the aggregate demand curve is still . A possible reason for this is that

The government wants to increase its spending by $1 billion to stimulate the economy and is counting on the government spending multiplier to help. Taking into account direct expenditure offset effects, what is its best spending option?

The government might engage in expansionary fiscal policy if it wanted to

What are the various time lags that affect discretionary fiscal policy, and what are their effects?

Explain the Ricardian equivalence theorem.

Which of the following is an example of a discretionary fiscal policy action?

In the traditional Keynesian model, an increase in government spending leads to all of the following EXCEPT

At tax rates higher than the tax rate that maximizes tax revenues along a Laffer curve,

In January 2009, the President submitted a bill to Congress in order to stimulate the economy and increase employment. The legislation was passed in March 2009, and the spending occurred from June 2009 to March 2011. As a result,

One characteristic of built-in or automatic stabilizers is that

When the current short-run equilibrium is to the right of the long-run aggregate supply, appropriate discretionary fiscal policy used to address this problem would be to

If the economy is operating on the long-run aggregate supply curve, then expansionary fiscal policy will

According to the Laffer curve, increases in the tax rate will lead to a(n)

The idea that creating incentives for individuals and firms to increase productivity leading to an increase in long-run aggregate supply is

How might fiscal policy be used to correct a recessionary gap?

The Laffer curve indicates which of the following?

The Ricardian equivalence theorem suggests that an increase in the government budget deficit created by a tax cut will

Supply-side economists argue that changes in tax rates cause changes in

The Ricardian equivalence theorem states that

Explain how indirect crowding out can offset expansionary fiscal policy.