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 during wartime,the government purchases multiplier would be ________ the administration's estimate,and economists Lawrence Christiano,Martin Eichenbaum,and Sergio Rebelo argued that when short-term interest rates are near zero,the multiplier would be ________ the administration's estimate.

Assume a country is required by law to balance the budget every year.Suppose aggregate demand falls,causing a recession and a budget deficit.To balance the budget,what would the government need to do with the level of government spending and taxes? How would these changes in government spending and taxes affect aggregate demand and the economy?

The federal budget deficit acts as an automatic stabilizer because

The multiplier effect refers to the series of

Suppose the government spending multiplier is 2.The federal government cuts spending by $40 billion.What is the change in GDP if the price level is not held constant?

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 ________.

An increase in the tax wedge associated with a given economic activity will decrease the level of that activity.

Figure 27-8 -Refer to Figure 27-8.In the graph above,suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B.Which of the following policies could Congress and the president use to move the economy to point C?

The tax increases necessary to fund future Social Security and Medicare benefit payments would be

Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation.

Cutting taxes

Part of the spending on the Doyle Drive project in northern California came from the American Reinvestment and Recovery Act,which is an example of ________ aimed at increasing real GDP and employment.

It is ________ difficult to effectively time fiscal policy than monetary policy because ________.

Figure 27-7 -Refer to Figure 27-7.Given that the economy has moved from A to B in the graph above,which of the following would be the appropriate fiscal policy to achieve potential GDP?

Describe the differences (in sign and relative magnitude)between the government purchases multiplier and the tax multiplier.

The federal budget was in deficit from 1931 to 1939,except in the year 1937.Given this fact,how do you explain E.Cary Brown's statement,"Fiscal policy,then,seems to have been an unsuccessful recovery device in the 'thirties-not because it did not work,but because it was not tried."

In the long run,most economists agree that a permanent increase in government spending leads to ________ crowding out of private spending.

Which of the following would be considered a fiscal policy action?

An increase in government spending increases the supply of money in our economy.

Active changes in tax and spending by government intended to smooth out the business cycle are called ________,and changes in taxes and spending that occur passively over the business cycle are called ________.