Exam 16: Fiscal Policy

Figure 16-9 -Refer to Figure 16-9.Given that the economy has moved from A to B in the graph above,which of the following would the appropriate fiscal policy to achieve potential GDP?

As spending on government purchases increases,income rises and money demand falls.

Suppose the federal budget deficit for the year was $100 billion and the economy was in a recession.If the economy had been at potential GDP,it is estimated that tax revenues would have been $60 billion higher and government spending on transfer payments $50 billion lower.Using these estimates,the cyclically adjusted budget

Figure 16-10 -Refer to Figure 16-10.In the graph above,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the Congress and the president use to move the economy to point C?

If the federal government's expenditures are less than its tax revenues,then

A change in consumption spending caused by income changes is ________ change in spending,and a change in government spending that occurs to improve roads and bridges is ________ change in spending.

Which of the following is considered expansionary fiscal policy?

Suppose that the federal budget is balanced when GDP is at potential GDP.If equilibrium GDP falls below potential,

Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced.What will happen to real equilibrium GDP?

Figure 16-11 -Refer to Figure 16-11.In the graph above,the shift from AD₁ to AD₂ represents the total change in aggregate demand.If government purchases increased by $50 billion,then the distance from point A to point B ________ $50 billion.

An increase in government spending increases the supply of money in our economy.

What is the "tax wedge"?

Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP.

Figure 16-2 -Refer to Figure 16-2.In the graph above,if the economy is at point A,an appropriate fiscal policy by the Congress and the president would be to

Federal government expenditures,as a percentage of GDP,

The cyclically adjusted budget deficit calculates the budget surplus or deficit at

Lowering the individual income tax will increase household disposable income and consumption spending.

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.This indicates that a ________ increase in government purchases would increase equilibrium real GDP by $157 billion

The larger the marginal propensity to import,the larger the government purchases multiplier.

The budget deficit increases during wars and recessions.