Exam 18: Fiscal Policy

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.

How can tax simplification be beneficial to the economy? _____________________________________________________________________________________________ _____________________________________________________________________________________________

If tax reduction and simplification are effective,then _________.

Refer to Figure 18.1 for the following questions. Figure 18.1 -If the economy moves from A to B in Figure 18.1,which of the following would be the appropriate fiscal policy to achieve potential GDP?

'Fiscal policy' refers to the _________.

'Expansionary fiscal policy' is used by the government in an attempt to fight rising inflation.

What is 'fiscal policy' and who is responsible for fiscal policy? _____________________________________________________________________________________________ _____________________________________________________________________________________________

A law requiring the government to balance its budget in each year would serve as an 'automatic destabiliser'.

Discretionary fiscal policy is when _________.

Government deficits tend to increase during _________.

As the tax wedge between pre-tax and post-tax returns for an economic activity gets larger,we would expect ________.

Suppose that the current equilibrium GDP for a country is $14.5 trillion and that potential GDP is $14.3 trillion.Will decreasing government purchases by $200 billion or raising taxes by $200 billion restore the economy to potential GDP? Briefly explain why. _____________________________________________________________________________________________ _____________________________________________________________________________________________

The largest source of revenue for the Australian federal government is ________.

Which of the following is a government 'expenditure' and not a government 'purchase'?

Show the impact of tax reduction and simplification using the dynamic aggregate demand and aggregate supply model.Clearly show and identify the impact of the tax change.Show what happens to the price level and real GDP because of the tax change. _____________________________________________________________________________________________ _____________________________________________________________________________________________

The Australian federal budget was in surplus during the _________.

How could the existence of unemployment benefits or other transfer programs reduce the severity of an economic contraction? _____________________________________________________________________________________________ _____________________________________________________________________________________________

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

Assuming a fixed amount of taxes and a closed economy,calculate the value of the government purchases multiplier,the tax multiplier,and the balanced budget multiplier if the marginal propensity to consume equals 0.75. _____________________________________________________________________________________________ _____________________________________________________________________________________________

If policy makers implement expansionary fiscal policy and do not take into account crowding out,equilibrium GDP is likely to ________.