Exam 18: Fiscal Policy

If increasing government spending also increases the price level,we would expect the level of interest rates to ________ and investment to ________.

What is 'expansionary fiscal policy' and under what circumstances would it be used? _____________________________________________________________________________________________ _____________________________________________________________________________________________

To ameliorate the effects of a recession,a government could enact appropriate policies including ________.

The tax multiplier _________.

Between 1970 and 2016 in Australia,the largest budget deficits occurred _________.

If 'crowding out' occurs,an increase in government spending __________.

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the government to conduct contractionary fiscal policy.Briefly explain the condition of the economy and what the government is attempting to do. _____________________________________________________________________________________________ _____________________________________________________________________________________________

What is the difference between 'discretionary fiscal policy' and 'automatic stabilisers'? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Accumulating debt can be a problem for the federal government because _________.

An increase in income taxes will reduce the rate of increase in aggregate demand but will have no effect on aggregate supply.

Poorly timed discretionary policy can do more harm than good.Getting the timing right with fiscal policy is generally _________.

Suppose real GDP is $1.3 trillion and potential GDP is $1.35 trillion.If the government increases government purchases by $0.5 trillion,then the economy will be brought to equilibrium at potential GDP.

A contractionary fiscal policy would cause the _________.

The structural budget deficit indicates what the budget deficit is during a recession.

Refer to Figure 18.4 for the following questions. Figure 18.4 -Given that the economy has moved from A to B in Figure 18.4,which of the following would be the appropriate fiscal policy to achieve potential GDP?

Refer to Figure 18.6 for the following questions. Figure 18.6 -Suppose the federal government reduces income taxes.Assume that the movement from A to B in Figure 18.6 represents normal growth in the economy before the tax change.If the tax change is not effective and labour supply and savings do not increase because of the tax change,then the tax change will __________.

An 'automatic stabiliser' is _________.

Is government debt bad for the economy? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Fiscal policy is quicker to implement than monetary policy,as with fiscal policy,changes can be done immediately by the government,whereas with monetary policy,it takes time to change interest rates in financial markets.

In 2015/2016,after social security and welfare payments,which of the following is the second largest category of Australian federal government expenditures at nearly 16 per cent of the total?