Exam 16: Fiscal Policy

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.75,the tax rate is 0.2,and the marginal propensity to import equals 0.3.

If the economy is slipping into a recession,which of the following would be an appropriate fiscal policy?

Figure 16-2 -Refer to Figure 16-2.In the graph above,if the economy is at point A,an appropriate fiscal policy by Congress and the president would be to

Automatic stabilizers refer to

Figure 16-9 -Refer to Figure 16-9.Given that the economy has moved from point A to point B in the graph above,which of the following would be the appropriate fiscal policy to achieve potential GDP?

A cut in tax rates effects equilibrium real GDP through two channels: ________ disposable income and consumer spending,and ________ the size of the multiplier effect.

Compare the effect on the price level and real GDP of a decrease in tax rates assuming a supply-side effect versus no supply-side effect.Compared to no supply-side effect,including a supply-side effect for the decrease in tax rates will cause the price level to increase ________ and real GDP to increase ________.

Which of the following would be considered a fiscal policy action?

A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

Figure 16-1 -Refer to Figure 16-1.Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers 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

Fiscal policy is determined by

Tax increases on business income decrease aggregate demand by decreasing

Why will there be less crowding out of private spending by government spending the less sensitive consumption,investment,and net exports are to changes in interest rates?

The Social Security and Medicare programs have been a failure in terms of reducing poverty among elderly U.S.citizens.

The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.

Figure 16-7 -Refer to Figure 16-7.Given that the economy has moved from A to B in the graph above,which of the following would be the appropriate fiscal policy to achieve potential GDP?

In an open economy,the government purchases multiplier will be smaller the

The government purchases multiplier equals the change in ________ divided by the change in ________.

Assume a country is required by law to balance the budget every year.Suppose aggregate demand falls,causing a recession and a budget deficit.To balance the budget,what would the government need to do with the level of government spending and taxes? How would these changes in government spending and taxes affect aggregate demand and the economy?

Crowding out refers to a decline in ________ as a result of an increase in ________.