Exam 13: Fiscal Policy

In the traditional Keynesian model, if the government raises taxes, then

-Refer to the above figure. Suppose the relevant aggregate demand curve is AD2. If the government wants to use discretionary fiscal policy to close the existing gap, it should

Using graphs, explain how indirect crowding out can occur when the government increases spending in an attempt to stimulate the economy.

According to supply-side economics, lower tax rates on wages

An example of an automatic stabilizer is

According to the Ricardian equivalence theorem, a tax cut that increases the government budget deficit will have

Suppose the government pursues expansionary fiscal policy by lowering taxes. What are the expected demand-side effects? What are the possible offsets to the demand-side effect? How might supply-side effects change these results?

What does research tell us about the impact of Ricardian equivalence effects on the economy?

The traditional Keynesian approach to fiscal policy assumes that

If an increase in government spending causes an increase in government borrowing, this could induce

Suppose policy makers pass a budget that results in a reduction in government spending and no change in taxes. This reduction in government spending will likely

If the government began providing free textbooks to college students who would otherwise have bought their books from the private sector, the government's action would result in

In the traditional Keynesian model, a cut in current taxes

When the government cuts taxes,

Government-provided unemployment insurance is an example of

One characteristic of automatic stabilizers is that

Automatic stabilizers are so-named because

-Refer to the above figure. If the current level of real GDP is $13 trillion, then the economy is experiencing

When real Gross Domestic Product (GDP) falls, which of the following will automatically occur?

The Keynesian perspective on the effect of an increase in taxes is that this policy action