Exam 18: Fiscal Policy

Explain why 'crowding out' might still occur even if the increase in government spending is funded by borrowing on global financial markets. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Government budget deficits can lead to higher real interest rates,which will reduce private investment.

If the absolute value of the tax multiplier equals 1.5,real GDP is $13 trillion,and potential GDP is $13.6 trillion,then taxes would need to be cut by ________ to restore the economy to potential GDP.

During an 'economic contraction',why is it likely that the federal government budget will move into deficit? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Assume in a closed economy that taxes are fixed and the marginal propensity to consume is equal to 0.8.What is the government purchases multiplier?

If the government wants to try to reduce unemployment,it could ________ spending and/or taxes should be ________.

Assume that the economy is in the state described by the following table. Year Potential GDP Real GDP Price Level 1 \ 1020 billion \ 1020 billion 100 2 \ 1080 billion \ 1060 billion 103 Draw a dynamic aggregate demand and aggregate supply diagram to illustrate the state of the economy in Year 1 and Year 2,assuming that no policy is pursued.Then illustrate the appropriate fiscal policy to use in this situation.Assume that the policy results in the economy producing at potential GDP.Provide an explanation. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Refer to Figure 18.3 for the following question. Figure 18.3 -Refer to Figure 18.3.Given that the economy has moved from A to B in the graph above,which of the following would be the appropriate fiscal policy to achieve potential GDP?

Which is the largest source of federal government revenue and which is the largest single area of government expenditure in Australia? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Assume that the federal government gives a $5 billion tax cut.Assume that tax rates are fixed,the economy is closed,and the marginal propensity to consume is 0.75.What happens to equilibrium GDP?

A number of governments in Europe from 2009 onward,including Ireland,faced loan defaults as they could not repay the interest on their loans and required assistance from the European Union and the International Monetary Fund.Which of the following is true of the situation facing Ireland at that time?

The increase in revenue taxation received by the government during an economic boom is due to discretionary fiscal policy.

Explain why accurately timing the fiscal policy may be more difficult than accurately timing of monetary policy. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Short-run resource crowding out is likely to be less of a problem when the economy is _________.

An initial increase in government purchases of $200 billion will shift the aggregate demand curve to the right by _______.

The 'multiplier effect' is the series of ________ increases in ________ expenditures that result from an initial increase in ________ expenditures.

Explain why the 'tax multiplier' is different from the government 'purchases multiplier'. _____________________________________________________________________________________________ _____________________________________________________________________________________________

If the government purchases multiplier equals 2,and real GDP is $14 trillion with potential GDP $14.5 trillion,then government purchases would need to increase by ________ to restore the economy to potential GDP.

The structural budget deficit calculates the budget surplus or deficit if the economy was _________.

Raising taxes will ________.