Exam 16: Fiscal Policy

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 increase government purchases by

Figure 16-1 -Refer to Figure 16-1.Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from

Expansionary fiscal policy

Which of the following would not be considered an automatic stabilizer?

Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?

Figure 16-3 -Decreasing government spending ________ the price level and ________ equilibrium real GDP.

Figure 16-5 -Refer to Figure 16-5.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,Congress and the president would most likely

Figure 16-1 -Refer to Figure 16-1.Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium.Using the static AD-AS model in the figure above,this would be depicted as a movement from

When President Obama took office in January 2009,he pledged to pursue an expansionary fiscal policy to try to pull the economy out of the recession.The next month,Congress passed the American Recovery and Reinvestment Act of 2009,an $840 billion package of spending increases and tax cuts that was

Give an example of an automatic stabilizer.Explain how automatic stabilizers work in the case of recession.

The federal government debt ________ when the federal government runs a deficit and ________ when the federal government runs a surplus.

The multiplier effect is the series of ________ increases in ________ expenditures that result from an initial increase in ________ expenditures.

Suppose Political Party A proposes a tax cut on business income to stimulate the economy.Political Party B opposes the tax cut on business income asserting that it would only help businesses,not the average working man and woman.If you were hired as an economist for Political Party A,explain how the tax cut on business income would help the average working man and woman.

Figure 16-11 -Refer to Figure 16-11.If government purchases increase by $100 billion and lead to an ultimate increase in aggregate demand as shown in the graph,the difference in real GDP between point A and point B will be

Calculate the value of the government purchases multiplier if the marginal propensity to consume equals 0.8,the tax rate equals 0.2,and the marginal propensity to import equals 0.05.

Which of the following is considered expansionary fiscal policy?

Figure 16-1 -Refer to Figure 16-1.Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or monetary policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from

Crowding out refers to a decrease in government purchases as a result of an increase in private expenditures.

In preparing their estimates of the stimulus package's effect on GDP,Obama administration economists estimated a government purchases multiplier of 1.57.This indicates that a $1 billion increase in government purchases would increase equilibrium real GDP by

Suppose real GDP is $13 trillion and potential real GDP is $13.5 trillion.If Congress and the president increase government purchases by $500 billion,then the economy will be brought to equilibrium at potential real GDP.