Exam 27: Fiscal Policy

Suppose that the current equilibrium GDP is $14.5 trillion and that potential GDP is $14.3 trillion. Will decreasing government purchases by $200 billion, or raising taxes by $200 billion, restore the economy to potential GDP? Explain.

The aggregate demand curve will shift to the right ________ the initial increase in government purchases.

Which of the following provides health-care coverage to people age 65 and over?

Expansionary fiscal policy will

If Congress and the president pursue an expansionary fiscal policy at the same time as the Federal Reserve pursues an expansionary monetary policy, how might the expansionary monetary policy affect the extent of crowding out in the short run?

The fastest growing category of government expenditure is

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

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

An increase in the money supply is a discretionary fiscal policy which will increase aggregate demand.

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 pursue

Show the impact of tax reduction and simplification using the dynamic aggregate demand and aggregate supply model. Clearly show and identify the impact of the tax change. Assume that aggregate demand and short-run aggregate supply shift as they typically do in the dynamic model. Show what happens to the price level and real GDP because of the tax change.

Government deficits tend to increase during

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."

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?

Social Security began as a "pay-as-you-go" system, meaning that payments to current retirees were paid

The aggregate demand curve will shift to the left ________ the initial decrease in government purchases.

Figure 27-11 -The government purchases multiplier equals the change in ________ divided by the change in ________.

Tax increases on business income decrease aggregate demand by decreasing

Explain why the tax multiplier is different from the government purchases multiplier, in both sign and relative magnitude.

A cut in tax rates effects equilibrium real GDP through two channels: ________ disposable income and consumer spending, and ________ the size of the multiplier effect.