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Exam 18: Fiscal Policy

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Question 31

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Which of the following is considered contractionary fiscal policy?

A) Congress increases the income tax rate.
B) Congress increases defense spending.
C) Legislation removes a college tuition deduction from federal income taxes.
D) The New Jersey legislature cuts highway spending to balance its budget.

E) A) and D)
F) A) and B)

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Question 32

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Of the $825 billion American Recovery and Reinvestment Act stimulus package which was enacted in 2009,approximately ________ took the form of tax cuts and ________ took the form of increases in government expenditures.

A) one-half;one-half
B) three-fourths;one-fourth
C) one-tenth;nine-tenths
D) one-third;two-thirds

E) B) and C)
F) A) and B)

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Question 33

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List the five categories of federal government expenditures.

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 ________.

The multiplier effect refers to the series of

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

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?

Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced.What will happen to real equilibrium GDP?

The largest and fastest-growing category of federal government expenditures is

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

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

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 the Congress to conduct expansionary fiscal policy.Briefly explain the condition of the economy and what the president and the Congress are attempting to do.

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?

Figure 18-1 -Refer to Figure 18-1.Suppose the economy is in a recession and expansionary fiscal policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from

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 ________.

The impact of crowding out may be the least

Since the Social Security system began in 1935,the number of workers per retiree has

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

If government increases taxes by the same amount it increases government spending,there will be no effect on aggregate demand: the increase in government spending is offset by an equal decrease in consumption spending by households.

Figure 18-1 -Refer to Figure 18-1.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