Exam 16: Fiscal Policy

In Year 1 suppose the economy is at potential GDP and that the federal budget deficit equals $100 billion.In Year 2 the federal budget deficit rises to $150 billion,but the cyclically adjusted budget deficit falls to $75 billion.How can the actual budget deficit rise and the cyclically adjusted budget deficit fall?

If the government purchases multiplier equals 2,and real GDP is $14 trillion with potential real GDP $14.5 trillion,then government purchases would need to increase by ________ to restore the economy to potential real GDP.

The level of crowding out associated with a tax cut will be smaller if the tax change has a supply-side effect than it will be if it only has a demand-side effect.

Table 16-3 -Refer to Table 16-3.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2016 and in 2017 if Congress and the president do not use fiscal policy.If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2017,which of the following will be higher than if Congress and the president had taken no action?

For the federal deficit to be lowered,

Which of the following is a government expenditure,but is not a government purchase?

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

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

The double taxation problem occurs because households pay taxes on dividends and capital gains from stock and corporations pay taxes on corporate profits.

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the president and Congress to conduct contractionary fiscal policy.Briefly explain the condition of the economy and what the president and Congress are attempting to do.

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

Which of the following is considered contractionary fiscal policy?

Expansionary fiscal policy involves increasing government purchases or increasing taxes.

Accumulating debt poses a problem for the U.S.federal government because

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 ________.

If the economy is falling below potential real GDP,which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

Long lags associated with the legislative process in implementing fiscal policy make it more difficult to use than monetary policy.

Suppose the government wants to maintain a balanced budget.To achieve this goal,when the economy falls into recession government would need to ________ taxes,which would cause aggregate demand to ________.

The majority of dollars spent by government prior to the Great Depression was spending at the ________.In the post World War II period,two-thirds to three quarters of all dollars spent by government in the United States are spent at the ________.

During 1970-1997,the U.S.federal government was