Exam 17: Monetary Policy

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 government to conduct contractionary fiscal policy.Briefly explain the condition of the economy and what the government is attempting to do.

Fiscal policy actions that are intended to have long-run effects attempt to increase ________ through changing ________.

Cutting taxes will

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

The government purchases multiplier is defined as:

Both Milton Friedman and Edmund Phelps argued that if the long-run aggregate supply curve was vertical,then the slope of the long-run Phillips curve must be

What is the difference between discretionary fiscal policy and automatic stabilisers?

Milton Friedman argued that there is a ________ trade-off between unemployment and inflation,and this trade-off comes from ________ inflation.

The increase in revenue taxation received by the government during an economic boom is due to discretionary fiscal policy.

An 'automatic stabiliser' is

Countries with a ________ marginal propensity to import will have ________ government purchase multipliers.

Which of the following is a government expenditure and not a government purchase?

An appropriate fiscal policy response when aggregate demand is growing at a faster rate than aggregate supply is to increase interest rates.

A general formula for the multiplier is

The cyclically adjusted budget deficit indicates what the budget deficit is during a recession.

Suppose that the nominal wage,the expected and actual price levels,and the expected and actual inflation rates for a hypothetical economy in 2014 are presented in the following table. Given the data,we know that

The ________ the tax wedge,the smaller the difference between pre-tax and post-tax returns for an economic activity,the ________ of that activity will occur.

Identify each of the following as (i)part of an expansionary fiscal policy,(ii)part of a contractionary fiscal policy,or (iii)not part of fiscal policy. a. The personal income tax rate is lowered. b. The government increases spending on defence due to a change in spending priorities. c. The company income tax rate is lowered. d. The State of New South Wales builds a new tollway in an attempt to expand employment and ease traffic congestion.

The ratio of the increase in ________ to the increase in ________ is called the 'multiplier.'

A number of governments in Europe from 2009 onward,including Ireland,faced loan defaults as they could not repay the interest on their loans,and required assistance from the European Union and the International Monetary Fund.Which of the following is true of the situation facing Ireland at that time?