Exam 13: Fiscal Policy

-The table above shows the aggregate production function in the economy of Prescottia. The people of Prescottia pay no taxes and are willing to work 248 million hours a year for a real wage rate of $8 an hour, and for each dollar increase in the real wage, they are willing to work 4 million additional hours per year. a)Draw the economy's aggregate production function. b)Prescottia's demand for labor schedule is in the table above. Draw Prescottia's demand for labor and supply of labor curves. c)What are the economy's full-employment quantity of labor and real wage rate? What is the country's potential GDP? d)Suppose that Prescottia's government introduces a 25 percent income tax. Using your graph, what happens to the demand for labor? What happens to the supply of labor? Explain. e)After the tax is imposed, what happens to Prescottia's full-employment quantity of labor? What happens to Prescottia's potential GDP?

The demand-side effect of a change in taxes is less than the same sized change in government expenditure because

Which of the following is NOT a revenue source for the Federal government?

In 2013, the U.S. government budget had a deficit. By definition, it must have been the case that

Fiscal policy

When real GDP is less than potential GDP, an increase in government expenditures will ________ real GDP and ________ the price level.

All of the following are government outlays EXCEPT

-Economic data for a mythical economy in the years 2012-2016 are summarized in the figure above. Assume that the spending formulas and tax schedules are identical for all years. When the economy is above full employment, the government has a

When an economy is above full employment and the government has a budget deficit, that deficit ________.

-Economic data for a mythical economy in the years 2012-2016 are summarized in the figure above. Assume that the spending formulas and tax schedules are identical for all years. When the economy is at less than full employment, the government has a

In October 2008, President Bush enacted the Alternative Minimum Tax Relief Act of 2008, which resulted in lower taxes on labor income. According the supply-side view, as a result of this act the incentive to work ________ and the tax wedge ________.

-The figure above illustrates the aggregate demand, short-run aggregate supply, and long-run aggregate supply in Lotus Land. The economy is currently at point D and the government decreases its taxes. The economy will move to ________. The price level will ________, and the change in real GDP will be ________ the increase in aggregate demand.

A report on the EU economic stimulus plan suggested that "... Governments must consider ... cutting VAT [value added tax] and labor taxes ..." The VAT is similar to a sales tax. If governments follow the suggestions, there will be ________ according to the supply-side view.

A fiscal action that is initiated by an act of Congress is called

Automatic fiscal policy occurs

How has the federal government debt as a percentage of GDP changed since the end of World War II?

In 2007, France's government had revenue of $1.287 trillion while expenditures totaled ?$1.356 trillion. GDP was $2.56 trillion. In 2007, the government budget balance was ________ and government debt ________.

Which of the following is NOT a government outlay?

In 2007, Denmark's government had expenditures of $157 billion and spending of $171 billion. GDP in 2007 was $312 billion. The government ran a budget ________ and government debt ________.

-In the above figure, which fiscal policy could help move the economy to potential GDP?