Exam 16: Fiscal Policy

If the federal budget goes from a budget deficit in Year 1 to a budget surplus in Year 2,does it follow that the federal government acted to raise taxes or cut government spending in Year 2?

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 ________.

Which of the following is a reason why we should consider the federal national debt a problem?

The cyclically adjusted budget is calculated at potential GDP.

Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,the largest spending increase occurred in which category?

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase ________ through changing ________.

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

Cutting taxes

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.

Crowding out will be greater

What are the key differences between how we illustrate an expansionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Suppose real GDP is $13 trillion,potential real GDP is $13.5 trillion,and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP.Assuming a constant price level,Congress and the president would need to decrease taxes by

Of the $840 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,the largest tax cuts occurred in which category?

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. )

The impact of crowding out may be the least

A study by Edward Prescott found that the ________ marginal tax rates in the United States relative to Europe resulted in a ________ quantity of labor supplied in the United States.

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

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

Which of the following would be most likely to induce Congress and the president to conduct contractionary fiscal policy? A significant