Exam 27: Fiscal Policy

A study by Edward Prescott found that the ________ marginal tax rates in the United States relative to Europe resulted in a ________ quantity of labor supplied in the United States.

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

What is fiscal policy, and who is responsible for fiscal policy?

What economic impact would the closing of a nearby military base have on a town? Would people and businesses that did not directly deal with the military personnel be affected?

Figure 27-11 -Refer to Figure 27-11. 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.

In preparing their estimates of the stimulus package's effect on GDP, Obama administration economists estimated a government purchases multiplier of 1.57. Economist Robert Barro argues that ________, the government purchases multiplier would be lower than the administration's estimate, and economists Lawrence Christiano, Martin Eichenbaum, and Sergio Rebelo argued that ________, the multiplier would be higher than the administration's estimate.

Suppose real GDP is $14 trillion and potential real GDP is $14.4 trillion. An increase in government purchases of $400 billion would cause real GDP to ________ potential real GDP (assuming a constant price level).

The automatic budget surpluses and budget deficits that occur in the federal budget over the business cycle

Consider the following statement, "The Federal Reserve fights recessions by increasing the money supply so people will have more money to spend." What is wrong with the statement and how can it be corrected?

As a percentage of GDP, federal expenditures ________ from 1950 to the early 1990s, ________ from 1992 to 2001, and have ________ since 2001.

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?

Table 27-1 -Refer to Table 27-1. Consider the hypothetical information in the table above for potential real GDP, real GDP and the price level in 2013 and in 2014 if the Congress and the president do not use fiscal policy. If the Congress and the president want to keep real GDP at its potential level in 2014, they should

The impact of crowding out may be the least

Before the Great Depression of the 1930s, the majority of government spending took place at the ________ and after the Great Depression the majority of government spending took place at the ________.

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

During the Great Depression, what appeared to be ________ fiscal policy was actually not when the ________ budget deficit or surplus is examined.

Table 27-2 -Refer to Table 27-2. Consider the hypothetical information in the table above for potential real GDP, real GDP and the price level in 2013 and in 2014 if the Congress and the president do not use fiscal policy. If the Congress and the president want to keep real GDP at its potential level in 2014, they should

Figure 27-12 -Refer to Figure 27-12. An increase in government purchases of $200 billion causes aggregate demand to shift ultimately from AD1 to AD2. Assuming a constant price level, the difference in real GDP between point A and point B will be ________ $200 billion.

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

In an open economy, the government purchases multiplier will be