CH 13

Refer to the diagram, in which Qf is the full-employment output. An expansionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at

AD0

Refer to the diagram, in which Qf is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at

AD3.

Discretionary fiscal policy is often initiated on the advice of the

Council of Economic Advisers.

The group of three economists appointed by the president to provide fiscal policy recommendations is the

Council of Economic Advisers.

Refer to the graph. Assume that the economy is in a recession with a price level of P1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output?

P2 and Q2

Refer to the figure. Suppose that the economy is currently operating at the intersection of AS and AD2 and that the full-employment level of output is Y. If contractionary fiscal policy and accompanying multiplier effects move aggregate demand from AD2 to AD1, what will be the effect on real GDP and the price level?

Real GDP will fall to X and the price level will remain unchanged, assuming a ratchet effect occurs.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

Reductions in federal tax rates on personal and corporate income.

Refer to the diagram. The equilibrium level of GDP is

Y4

Which of the following represents the most contractionary fiscal policy?

a $30 billion decrease in government spending.

Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it is experiencing

a negative GDP gap.

An appropriate fiscal policy for severe demand-pull inflation is

a tax rate increase.

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward

an excess of government expenditures over tax receipts.

The effect of a government surplus on the equilibrium level of GDP is substantially the same as

an increase in saving.

In the diagram, it is assumed that investment, net exports, and government purchases

are independent of the level of GDP.

Refer to the diagram. If the full-employment level of GDP is A, then it would be appropriate fiscal policy for government to

decrease spending and increase taxes.

Countercyclical discretionary fiscal policy calls for

deficits during recessions and surpluses during periods of demand-pull inflation.

Fiscal policy refers to the

deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

A given reduction in government spending will dampen demand-pull inflation by a greater amount when the

economy's aggregate supply curve is steep.

When the Federal government uses taxation and spending actions to stimulate the economy, it is conducting

fiscal policy.

Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it would be appropriate for the government to

increase government expenditures or reduce taxes.

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $400 billion, (2) investment = $40 billion, (3) government purchases = $90 billion, and (4) net export = $25 billion. If the full-employment level of GDP for this economy is $600 billion, then what combination of actions would be most consistent with closing the GDP gap here?

increase government spending and decrease taxes

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be

increased government spending or decreased taxation, or a combination of the two actions.

If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $60 billion by

increasing taxes by $20 billion.

Refer to the figure. The economy is at equilibrium at point B. What would expansionary fiscal policy do?

move the economy from point B towards point A

The goal of expansionary fiscal policy is to increase

real GDP.

An expansionary fiscal policy is shown as a

rightward shift in the economy's aggregate demand curve.

Contractionary fiscal policy would tend to make a budget deficit become

smaller

An economist who favors smaller government would recommend

tax cuts during recession and reductions in government spending during inflation.

Fiscal policy is enacted through changes in

taxation and government spending.

If the government wishes to increase the level of real GDP, it might reduce

taxes.