Exam 16: Fiscal Policy

A study by Edward Prescott found that the ________ marginal tax rates in the United States relative to Europe resulted in a ________ quantity of labor supplied in the United States.

An increase in government spending will force an appreciation of the dollar,which causes net exports to fall.

The automatic budget surpluses and budget deficits that occur in the federal budget over the business cycle

The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.

Assume a closed economy with fixed taxes and the marginal propensity to consume is equal to 0.9.What is the government spending multiplier?

Fiscal policy is determined by

Federal government expenditures as a percentage of GDP

Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.

Crowding out,following an increase in government spending,results from (the exchange rate is the foreign exchange price of the domestic currency)

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,approximately one-third took the form of ________ and two-thirds took the form of increases in ________.

If the economy is falling below potential real GDP,which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Increasing the federal budget deficit will contribute to increasing the federal government debt.

Suppose real GDP is $13 trillion and potential real GDP is $13.5 trillion.If Congress and the president increase government purchases by $500 billion,then the economy will be brought to equilibrium at potential real GDP.

Cutting taxes

During most of the years of the Great Depression,the actual federal budget was in ________,and the cyclically adjusted budget was in ________.

The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of

Borrowing to pay for long-lived capital expenditures makes sense as

Suppose Political Party A proposes a tax cut on business income to stimulate the economy.Political Party B opposes the tax cut on business income asserting that it would only help businesses,not the average working man and woman.If you were hired as an economist for Political Party A,explain how the tax cut on business income would help the average working man and woman.

A one-time tax rebate,which is not expected to be extended in future years,will

An increase in the sensitivity of private spending (consumption,investment,and net exports)to changes in the interest rate ________ the government purchases multiplier.