Chapter 16 Practice Questions

What is meant by crowding out?

A decline in private expenditures as a result of increased in government purchases

Which can be changed more quickly: monetary policy or fiscal policy?

Monetary policy can be changed more quickly than fiscal policy; M.P can be changed at any of the FOMC meetings and the smaller number of individuals involved makes it easier to change policy.

After 9/11, the federal government increase military spending on wars in Iraq and Afghanistan. Is this increase in spending considered fiscal policy?

No, the increase in defense spending after the date was designed to achieve homeland security objectives

the actual change in real GDP resulting from an increase in government purchases or a cut in taxes will be less than the simple multiplier effect indicates. True or false?

True

Assume that taxes and interest rates remain unchanged when government spending increases, and that both savings and consumer spending increase when income increases. The ultimate effect on real GDP of a 100$ million increase in gov purchase of goods and services will be...

an increase of more than $100 million

What is Fiscal Policy

changes in government spending and taxes to achieve macroeconomic policy objectives

what changes should they make if they decide a contradictionart fiscal policy is necessary

congress and the president should enact policies that decrease government spending and increase taxes

an attempt to reduce inflation requires ____________ fiscal policy, which causes real GDP to _______ and the price level to ______

contractionary; fall; fall

The higher the tax rate, the larger the multiplier effect. True or false

false

What is the differences between federal purchases and federal expenditures

federal purchases require that the government receives a good or service in return, whereas federal expenditures include transfer payments

Which of the following is an example of expansionary fiscal policy.

increasing government purchases

what is the cyclically adjusted budget deficit or surplus

the cyclically adjusted budget deficit or surplus is the deficit or surplus in the federal government's budget if the economy were at potential GDP.

why might increasing taxes as a fiscal policy be a more difficult policy than the use of monetary policy to slow down an economy experiencing inflation

the legislative process experiences longer delays than monetary policy

the goal of expansionary fiscal policy is

to increase aggregate demand

When the economy is experiencing a recession, automatic stabilizers will cause what

transfer payments to increase and tax revenues to decrease