Exam 18: Fiscal Policy

Consider the hypothetical information in the following table for potential GDP,real GDP,and the price level in 2017 and in 2018 if the government does not use fiscal policy. Year Potential GDP Real GDP Price Level 2017 \ 1.5 trillion \ 1.5 trillion 150 2018 \ 1.7 trillion \ 1.6 trillion 152 If the government wants to keep real GDP at its potential level in 2014,it should _________.

'Fiscal policy' (discretionary fiscal policy)is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability,healthy rates of economic growth,and high employment.

Reducing taxes by a specific fixed amount will usually __________.

The government purchases multiplier is defined as:

What is 'long-run crowding out'? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Explain how lowered taxes on capital gains and dividends might increase aggregate supply. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Which of the following is considered 'expansionary fiscal policy'?

A federal budget deficit acts as an automatic stabiliser because ________.

Increasing government debt relative to GDP does not cause which of the following?

The tax multiplier is calculated as 'one minus the government purchases multiplier'.

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

Refer to Figure 18.4 for the following questions. Figure 18.4 -In Figure 18.4,if fiscal policy is successful at moving the economy from point B to equilibrium at potential GDP,which of the following will occur?

Fiscal policy actions that are intended to have long-run effects attempt to increase ________ through changing ________.

The federal government debt ________ when the federal government runs a deficit and ________ when the federal government runs a surplus.

'Crowding out' will be smaller if _________.

If the federal budget has an actual budget surplus of $75 billion,but a structural budget surplus of $50 billion,then the economy must be above potential GDP.

If economists predict that the inflation will increase,the government should ________.

Tax increases on business income slow down the rate of increase in aggregate demand by decreasing __________.