Exam 16: Fiscal Policy

The tax increases necessary to fund future Social Security and Medicare benefit payments would be

Contractionary fiscal policy involves decreasing government purchases or increasing taxes.

In Year 1 suppose the economy is at potential GDP and that the federal budget deficit equals $100 billion.In Year 2 the federal budget deficit rises to $150 billion,but the cyclically adjusted budget deficit falls to $75 billion.How can the actual budget deficit rise and the cyclically adjusted budget deficit fall?

To combat inflation,Congress and the president should

Figure 16-1 -Refer to Figure 16-1.Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium.Using the static AD-AS model in the figure above,this would be depicted as a movement from

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 0.5.

The government budget for the country of Economia is in surplus in 2011,and in deficit in the following year,2012.We can conclude the

A decrease in individual income taxes ________ disposable income,which ________ consumption spending.

Figure 16-1 -Refer to Figure 16-1.Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium.Using the static AD-AS model in the figure above,this would be depicted as a movement from

Automatic stabilizers refer to

Suppose that the current equilibrium GDP 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? Explain.

The Social Security and Medicare programs have been a failure in terms of reducing poverty among elderly U.S.citizens.

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 president and the Congress to conduct expansionary fiscal policy.Briefly explain the condition of the economy and what the president and the Congress are attempting to do.

President Bush lowered taxes on capital gains and dividends in 2003.Explain how this might increase aggregate supply.

In absolute value,the tax multiplier is greater than the government purchases multiplier.

The multiplier effect refers to the series of

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.

In the long run,most economists agree that a permanent increase in government spending leads to ________ crowding out of private spending.

Figure 16-1 -Refer to Figure 16-1.An increase in taxes would be depicted as a movement from ________,using the static AD-AS model in the figure above.

To complement actions by the Fed to reduce inflation,Congress and the President can cut spending and/or raise taxes.