Exam 16: Fiscal Policy

Suppose that the federal budget is balanced when GDP is at potential GDP.If equilibrium GDP falls below potential,

A tax rebate,which is expected to be offered in this and all future years,will

An increase in government spending lowers interest rates and increases the rate of investment in new capital.

If policymakers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to

During most of the years of the Great Depression,the actual federal budget was in ________,and the cyclically adjusted budget was in ________.

If real GDP is $300 billion below potential GDP and the tax multiplier equals -1.5,then how much would the government need to change taxes to bring the economy to equilibrium at potential?

Suppose the president is successful in passing a $10 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.8.What happens to equilibrium GDP?

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

What economic impact would the closing of a nearby military base have on a town? Would people and businesses that did not directly deal with the military personnel be affected?

How could the existence of an unemployment insurance system or other transfer programs have reduced the severity of the Great Depression?

The nation of Hyperbole is in a recession,and the government decides to increase taxes and reduce government spending to reduce the growing deficit.This will ________ aggregate demand and will likely ________ real GDP and employment.

In an open economy,the government purchases multiplier will be

What is the difference between fiscal policy and monetary policy?

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

Borrowing to pay for long-lived capital expenditures makes sense as

Consider the following statement,"The Federal Reserve fights recessions by increasing the money supply so people will have more money to spend." What is wrong with the statement and how can it be corrected?

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,approximately one-third took the form of ________ and two-thirds took the form of increases in ________.

The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because

If real GDP exceeded potential real GDP and inflation was increasing,which of the following would be an appropriate fiscal policy?

Tax cuts on business income increase aggregate demand by increasing