Exam 27: Fiscal Policy

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.Economist Robert Barro argues that ________,the government purchases multiplier would be lower than the administration's estimate,and economists Lawrence Christiano,Martin Eichenbaum,and Sergio Rebelo argued that ________,the multiplier would be higher than the administration's estimate.

Crowding out refers to a decrease in government purchases as a result of an increase in private expenditures.

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.

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

If real equilibrium GDP is above potential GDP,expansionary fiscal policy should be pursued.

Why will there be less crowding out of private spending by government spending the less sensitive consumption,investment,and net exports are to changes in interest rates?

Figure 27-5 -Refer to Figure 27-5.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

Automatic stabilizers refer to

Figure 27-2 -Refer to Figure 27-2.In the graph above,if the economy is at point A,an appropriate fiscal policy by Congress and the president would be to

Some economists argue that the federal government should normally run a deficit at potential GDP,with the borrowed funds applied to

As the tax wedge associated with a given economic activity gets smaller,we would expect

The cyclically adjusted budget deficit calculates the budget surplus or deficit at

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

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

A tax rebate by the government would

Congress and the president carry out fiscal policy through changes in

What is fiscal policy,and who is responsible for fiscal policy?

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

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

Fiscal policy is determined by