Exam 16: Fiscal Policy

A decrease in which of the following would decrease the tax wedge?

The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of

Borrowing to pay for long-lived capital expenditures makes sense as

Suppose that Congress allocates $1 billion to clean up after the hurricanes of 2005.It also raises taxes by $1 billion to keep the deficit from growing.If the marginal propensity to consume is 0.9,what is the effect on equilibrium GDP?

If the government purchases multiplier equals 2,and real GDP is $14 trillion with potential real GDP $14.5 trillion,then government purchases would need to increase by ________ to restore the economy to potential real GDP.

Crowding out refers to a decrease in government purchases as a result of an increase in private expenditures.

If the economy is slipping into a recession,which of the following would be an appropriate fiscal policy?

Congress and the president carry out fiscal policy through changes in

A law requiring the government to balance its budget in each year would serve as an automatic destabilizer.

A tax rebate by the government would

Suppose the government spending multiplier is 2.The federal government cuts spending by $40 billion.What is the change in GDP if the price level is not held constant?

During the twentieth century,the largest budget deficits as a percentage of GDP occurred

Figure 16-4 -Refer to Figure 16-4.In the graph above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Congress and the president?

Which of the following would not be considered an automatic stabilizer?

If Congress wanted to counteract the effects of a recession it could

The level of crowding out associated with a tax cut will be smaller if the tax change has a supply-side effect than it will be if it only has a demand-side effect.

if government spending and the price level increase,then

Compare the effect on the price level and real GDP of a decrease in tax rates assuming a supply-side effect versus no supply-side effect.Compared to no supply-side effect,including a supply-side effect for the decrease in tax rates will cause the price level to increase ________ and real GDP to increase ________.

The federal budget was in deficit from 1931 to 1939,except in the year 1937.Given this fact,how do you explain E.Cary Brown's statement,"Fiscal policy,then,seems to have been an unsuccessful recovery device in the 'thirties-not because it did not work,but because it was not tried."

An increase in the tax wedge associated with a given economic activity will decrease the level of that activity.