Exam 16: Fiscal Policy

Figure 16-12 -Refer to Figure 16-12.An increase in government purchases of $200 billion causes aggregate demand to shift ultimately from AD1 to AD2.Assuming a constant price level,the difference in real GDP between point A and point B will be ________ $200 billion.

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.8,the tax rate is 0.1,and the marginal propensity to import equals 0.2.

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.

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

A decrease in the tax rate will ________ the disposable income of households and ________ the size of the multiplier effect.

Suppose that the current equilibrium GDP is $14.5 trillion and that potential GDP is $14.3 trillion.Will decreasing government purchases by $200 billion,or raising taxes by $200 billion,restore the economy to potential GDP? Explain.

An increase in government purchases of $200 billion will shift the aggregate demand curve to the right by

An increase in individual income taxes ________ disposable income,which ________ consumption spending.

What is the government purchases multiplier if the tax rate is 0.1 and the marginal propensity to consume is 0.9? Assume the economy is closed.

Raising taxes on interest and dividend income will increase the level of investment and economic growth.

Included in government expenditures are government purchases and transfer payments.

Suppose the federal budget deficit for the year was $100 billion and the economy was in a recession.If the economy had been at potential GDP,it is estimated that tax revenues would have been $60 billion higher and government spending on transfer payments $50 billion lower.Using these estimates,the cyclically adjusted budget

Show the impact of tax reduction and simplification using the dynamic aggregate demand and aggregate supply model.Clearly show and identify the impact of the tax change.Assume that aggregate demand and short-run aggregate supply shift as they typically do in the dynamic model.Show what happens to the price level and real GDP because of the tax change.

Congress and the president carry out fiscal policy through changes in

If the federal government's expenditures are less than its tax revenues,then

Expansionary fiscal policy is used to increase aggregate demand in an attempt to fight rising inflation.

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

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 ________,the government purchases multiplier would be lower than the administration's estimate,and economists Lawrence Christiano,Martin Eichenbaum,and Sergio Rebelo argued that ________,the multiplier would be higher than the administration's estimate.

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 ________.

The problem typically during a recession is not that there is too little money,but too little spending.If the problem was too little money,what would be its cause? If the problem was too little spending,what could be its cause?