Exam 16: Fiscal Policy

The majority of dollars spent by government prior to the Great Depression was spending at the ________ level.In the post World War II period,two-thirds to three quarters of all dollars spent by government in the United States are spent at the ________ level.

In the long run,most economists agree that a permanent increase in government spending leads to

Tax reduction and simplification should ________ long-run aggregate supply and ________ aggregate demand.

Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?

Increases in government spending result in ________ in the short run,and permanent increases in government spending result in ________ in the long run.

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

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

A tax rebate,like the one issued in 2008,is likely to ________ consumption spending ________ than would a permanent tax cut.

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

Increasing the federal budget deficit will contribute to increasing the federal government debt.

Suppose President Obama is successful in passing a $5 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.75.What happens to equilibrium GDP?

It is ________ difficult to effectively time fiscal policy than monetary policy because ________.

If Congress and the president pursue an expansionary fiscal policy at the same time as the Federal Reserve pursues an expansionary monetary policy,how might the expansionary monetary policy affect the extent of crowding out in the short run?

Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the ________ effect.

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

Included in government expenditures are government purchases and transfer payments.

An increase in the money supply is a discretionary fiscal policy which will increase aggregate demand.

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

The federal government debt as a percentage of GDP fell during the period

Suppose real GDP is $13 trillion,potential real GDP is $13.5 trillion,and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP.Assuming a constant price level,Congress and the president would need to decrease taxes by