Exam 27: Fiscal Policy

If government increases taxes by the same amount it increases government spending, there will be no effect on aggregate demand: the increase in government spending is offset by an equal decrease in consumption spending by households.

The tax wedge is the difference between the

An appropriate fiscal policy response when aggregate demand is growing at a faster rate than aggregate supply is to decrease the money supply.

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

Consider a tax cut which affects not only consumer disposable income, but also after-tax earnings from labor supplied to labor markets and from financial assets acquired through saving. In the long run we would expect this tax cut to

The federal government debt ________ when the federal government runs a deficit and ________ when the federal government runs a surplus.

Federal government purchases, as a percentage of GDP,

Figure 27-7 -Refer to Figure 27-7. Given that the economy has moved from A to B in the graph above, which of the following would be the appropriate fiscal policy to achieve potential GDP?

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 $1 billion increase in government purchases would increase equilibrium real GDP by

Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?

Figure 27-5 -From an initial long-run equilibrium, if aggregate demand grows faster than long-run and short-run aggregate supply, then Congress and the president would most likely

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.

Does expansionary fiscal policy directly increase the money supply? Isn't it true that the president and Congress fight recessions by spending more money?

Crowding out, following an increase in government spending, results from (the exchange rate is the foreign exchange price of the domestic currency)

Tax cuts on business income increase aggregate demand by increasing

The cyclically adjusted budget is calculated at potential GDP.

The three categories of federal government expenditures, in addition to government purchases, are

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

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

Figure 27-1 -Refer to Figure 27-1. An increase in taxes would be depicted as a movement from ________, using the static AD-AS model in the figure above.