Exam 11: Monopolistic Competition, oligopoly, and Game Theory

Suppose the economy is at a point below its physical production possibilities frontier but above its institutional production possibilities frontier.In response to this situation,Keynesian economists may propose that government enact __________ fiscal policy to correct this __________ gap by __________ government expenditures.

Smith says that if government purchases rise by $100 billion,the AD curve will shift to the right.Jones says that if government purchases rise by $100 billion,the AD curve will not shift to the right.It follows that

The transmission lag is the period that elapses between the time fiscal policy is enacted and the time it is put into effect.

Explain how tax cuts can impact both aggregate demand and aggregate supply.Give an example of each.

Fiscal policy is

Fiscal policy may not work as policymakers intend it to work because of

The U.S.income tax is currently a __________ tax.

A "flat tax" is another term for a regressive tax.

Define crowding out.Give a hypothetical numerical example to show the difference between complete crowding out and incomplete crowding out.Explain how complete and incomplete crowding out could impact the effectiveness of fiscal policy.

A permanent marginal tax rate cut would be expected to shift both the short-run and the long-run aggregate supply curves to the right.

-Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT).The value added by the farmer is ______________.If the government imposes a VAT rate of 10 percent,the farmer must pay ___________ in VAT tax and will need to raise the price he charges the miller to _______________.

Which of the following is not an example of a "lag" that diminishes the potential impact of the use of fiscal policy?

Both Jones and Smith agree that the economy is in a recessionary gap.Jones proposes a tax cut and believes that it will raise Real GDP and lower the price level.Smith agrees that a tax cut will raise Real GDP,but he argues that it will not lower the price level in the short run.It follows that

-Refer to Exhibit 11-6.The economy is currently in short-run equilibrium producing Q₁.In this situation,Keynesian economists would most likely propose

An example of expansionary fiscal policy is

Which of the following illustrates the data lag?

Complete crowding out implies that as government increases purchases by $1,

Suppose the economy is at a position below its institutional production possibilities frontier.To improve this situation,Keynesian economists might propose that government __________ taxes,which will cause the aggregate demand curve to shift to the __________ and Real GDP will __________.

Elaine's taxable income increases by $1 and her tax payment increases by $0.28.Her marginal tax rate is

The Laffer curve makes the point that cutting a very high marginal tax rate can __________ the tax base enough so that tax revenues __________.