Macro Exam 3

if the government purchases multiplier equals 2, and the real GDp is 14 trillion with potential real GDP 14.6 trillion, then government purchases would need to increase by ______ to restore the economy to potential real GDP

250 billion

the relationship between the tax rate and the amount of tax revenue collected is called the _________ curve if the US were on the "wrong" side of this curve, a decrease in the tax rate would ________ tax revenue

Laffer; increase

Fiscal policy attempts to achieve all of the following objective except...

a stable money supply

A fall in real GDp that results in a decrease in personal income tax receipts is an example of_____

automatic fiscal policy

Tax cuts on business income increases aggregate demand by increasing

business investment spending

The aggregate demand curve will shift to the left __________ the initial decrease in government purchase

by more than

The aggregate demand curve will shift to the right ___________ the initial increase in government purchases.

by more than

the aggregate demand curve will shift to the right _________ the initial decrease in taxes

by more than

A tax on labor income____ the equilibrium quantity of labor_______

decreases the supply of labor; descreases

decreasing government spending ________ the price level and _________ equilibrium real GDP.

decreases; decreases

The government increases the tax rate on labor income: as a result the supply of labor________and the demand for labor_______ the equilibrium level of employment___________

decreases; does not change; decreases

A decrease in the tax on capital income _______ the real interest rate and ______investment and economic growth

decreases; increases

an increase individual income taxes __________ disposable income which ___________ consumption spending.

descreases; decreases

the tax multiplier equals the change in _____ divided by the change in _______ .

equilibirum real GDP; taxes

the government purchases multiplier equals the change in ______ divided by the change in __________.

equilibrium real GDP; government purchases

expansionary fiscal policy to prevent real GDp from falling below potential real GDP would cause the inflations rate to be __________ and the real GDP to be _______

higher;higher

Taxes and needs-tested spending works as automatic fiscal policy to dampen the business cycle because taxes___________ during an expansion, and needs tested spending _______during a recession

increase; increases

Fiscal Stimulus that increases an existing government budget deficit _________ loanable funds and _________ investment.

increases the demand for; decreases

expansionary fiscal policy involves

increasing government purchases or decreasing taxes

the _______ lag is the time it takes congress to pass the laws needed to change taxes or spending.

law-making

Supose 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

less than 500 billion

suppose real GDP is 13 trillion , potential real GDP is 13.5 trillion, and conger 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 decrease taxes by

less then 500 billion

The government increase the tax rate on labor income: At the equilibrium level of employment, the before-tax wage rate______and the after tac wage rate________ potential GDP_____

rises;fals;decreases

When a tax is applied to labor income, the result is a ________ full employment quantity of labor and a _______potential GDP

smaller;lower

A budget deficit that needs government action to remove it is a ______ deficit. A ______ deficit will disappear when the economy moves back to full employment.

structural; cyclical

Tax cuts on business income __________Aggregate demand

would increase