Exam 27: Fiscal Policy

Federal government expenditures, as a percentage of GDP,

When President Obama took office in January 2009, he pledged to pursue an expansionary fiscal policy to try to pull the economy out of the recession. The next month, Congress passed the American Recovery and Reinvestment Act of 2009, a $840 billion package of ________ that was the largest fiscal policy action in U.S. history.

An increase in individual income taxes ________ disposable income, which ________ consumption spending.

From the 1960s to 2012, transfer payments

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary 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, and no fiscal or monetary policy is pursued, then at point B

Figure 27-4 -Expansionary fiscal policy involves increasing government purchases or increasing taxes.

A one-time tax rebate, which is not expected to be extended in future years, will

Figure 27-11 -Which of the following would increase the size of the government purchases multiplier?

Figure 27-1 -Refer to Figure 27-1. Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the static AD-AS model in the figure above, this would be depicted as a movement from

In early 2008, the housing crisis and rising oil prices increased the risk of recession in the United States. What fiscal policy action was taken by Congress and the president to counter these events?

If the tax multiplier is -1.5 and a $200 billion tax increase is implemented, what is the change in GDP, holding everything else constant? (Assume the price level stays constant.)

In an open economy, the government purchases multiplier will be larger the

Which of the following is an example of discretionary fiscal policy?

Prior to the 1930s, the majority of dollars spent by government was spent at the state and local levels.

Suppose that Congress allocates $5 billion to an "energy-efficient appliance rebate" program. It also raises taxes by $5 billion to keep the deficit from growing. If the marginal propensity to consume is 0.8, what is the effect on equilibrium GDP?

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

The aggregate demand curve will shift to the right ________ the initial decrease in taxes.

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

Illustrate and explain the effects of tax reduction and simplification using the dynamic aggregate demand and supply model. To simplify the analysis, assume that aggregate demand is not affected by the tax cut.