Exam 27: Fiscal Policy

Figure 27-6 -Refer to Figure 27-6. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely

Article Summary In a letter to Congress, Treasury Secretary Jacob Lew stated that the United States will run out of borrowed money by Thursday, October 17 unless the $16.7 trillion debt ceiling was raised. Every Thursday, the Treasury typically rolls over $100 billion in debt as bonds mature and investors use the proceeds to buy new bonds, and Lew was concerned that without an increase in the debt ceiling, a crisis could emerge from a massive bond sell-off. Since the government had reached its current debt limit, it would only be able to use daily on-hand revenue to pay its bills without the increase in the ceiling. The Treasury expected the government to have only $30 billion per day in cash on hand by October 17, while its typical daily expenses were $60 billion. "If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations for the first time in our history," Lew said. Source: Gregory Korte, "Treasury will run out of borrowed money by Oct. 17," USA Today, September 25, 2013. -Refer to the Article Summary. When does the Treasury Department borrow? Why would the Treasury have to borrow more than it estimated, as was indicated by its letter to Congress to raise the debt ceiling? When would the Treasury repay what it borrowed, and who is it repaying?

Table 27-4 -Refer to Table 27-4. 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 use fiscal policy successfully to keep real GDP at its potential level in 2014, which of the following will be lower than if the Congress and the president had taken no action?

Figure 27-11 -Refer to Figure 27-11. If government purchases increase by $100 billion and lead to an ultimate increase in aggregate demand as shown in the graph below, the difference in real GDP between point A and point B will be

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.

The government purchases multiplier will be larger if the marginal income tax rate decreases.

Assuming a fixed amount of taxes and a closed economy, calculate the value of the government purchases multiplier, the tax multiplier, and the balanced budget multiplier if the marginal propensity to consume equals 0.5.

Included in government expenditures are government purchases and transfer payments.

Give an example of an automatic stabilizer. Explain how automatic stabilizers work in the case of recession.

The largest and fastest-growing category of federal government expenditures is

Suppose the government wants to maintain a balanced budget. To achieve this goal, when the economy falls into recession government would need to ________ taxes, which would cause aggregate demand to ________.

Which of the following would be most likely to induce Congress and the president to conduct contractionary fiscal policy? A significant

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

In a closed economy with fixed or autonomous (non-income dependent) taxes, the balanced budget government purchases multiplier is negative.

The crowding out of private spending by government spending will be greater the

Fiscal policy is determined by

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.8, the tax rate is 0.1, and the marginal propensity to import equals 0.2.

Expansionary fiscal policy involves

If the federal budget has an actual budget deficit of $100 billion and a cyclically adjusted budget deficit of $75 billion, then the economy

The Social Security and Medicare programs have been a failure in terms of reducing poverty among elderly U.S. citizens.