Exam 27: Fiscal Policy

Figure 27-11 -Refer to Figure 27-11.If government purchases increase by $100 billion and lead to an ultimate increase in aggregate demand as shown in the graph,the difference in real GDP between point A and point B will be

A(n)________ in private expenditures as a result of a(n)________ in government purchases is called crowding out.

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. )

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion.To move the economy back to potential GDP,Congress should

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability,high rates of economic growth,and high employment.

Crowding out refers to a decline in ________ as a result of an increase in ________.

The impact of crowding out may be the least

Economists who believe the supply-side effects of tax cuts are small essentially believe that

In an open economy,the government purchases multiplier will be

Data indicates that recessions following financial crises ________ recessions which do not follow financial crises.

In recent economic history,the U.S.federal budget was in surplus from

How can tax simplification be beneficial to the economy?

To complement actions by the Fed to reduce inflation,Congress and the President can cut spending and/or raise taxes.

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Table 27-6 Year Potential Real GDP Real GDP Price Level 1 \ 11.0 trillion \ 11.0 trillion 100 2 11.5 trillion 11.7 trillion 109 -Refer to Table 27-6.Suppose the economy is in the state described by the table above.What problem will occur in the economy if no policy is pursued? What fiscal policy tools could be used to combat the problem? Draw a dynamic aggregate demand and aggregate supply diagram to illustrate the appropriate fiscal policy to use in this situation.

Explain why the timing of fiscal policy may be more difficult than the timing of monetary policy.

A permanent tax cut would likely ________ consumption spending ________ than would a tax rebate like the one issued in 2008.

Suppose real GDP is $13 trillion and potential real GDP is $13.5 trillion.If Congress and the president increase government purchases by $500 billion,then the economy will be brought to equilibrium at potential real GDP.

As spending on government purchases increases,income rises and money demand falls.

Tax cuts on business income increase aggregate demand by increasing