macroecon ch. 16

if the tax multiplier is -1.5 and a $200 billion tax increases implemented, what is the change in GDP, holding all else constant?

A $300 billion decrease in GDP

which of the following is a government expenditure, but is not a government purchase?

The federal government pays out an unemployment insurance claim

in the long run, most economists agree that a permanent increase in government spending leads to

a decrease in private spending by the same amount that government spending increased

If real GDP exceeded potential real GDP and inflation was increasing, which of the following would be an appropriate fiscal policy?

an increase in taxes

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

automatic stabilizers

tax increases on business income decrease aggregate demand by decreasing

business investment spending

The aggregate demand curve will shift to the left ____________ the initial decrease in government purchases

by more than

in the long run, most economists agree that a permanent increase in government spending leads to ____________ crowding out of private spending

complete

from an initial long run equilibrium, if aggregate demand grows faster than long run and short run aggregate supply, then Congress and the president would most likely

decrease government spending

an economic expansion tends to cause the federal budget deficit to ____________ because tax revenues ____________ and government spending on transfer payments ____________

decrease; rise; fall

decreasing government spending ____________ the price level and ____________ equilibrium real GDP

decreases; decreases

Active changes in tax and spending by government intended to smooth out the business cycle are called ____________, and changes in taxes and spending that occur passively over the business cycle are called ____________

discretionary fiscal policy; automatic stabilizers

The government purchases multiplier equals the change in ____________ divided by the change in ____________

equilibrium real GDP; government purchases

the tax multiplier equals the change in ____________ divided by the change in ____________

equilibrium real GDP; taxes

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

increase; fall; rise

tax reduction and simplification should ____________ long run aggregate supply and ____________ aggregate demand

increase; increase

it is ____________ difficult to effectively time fiscal policy than monetary policy because ____________

more; fiscal policy takes longer to implement

borrowing to pay for long-lived capital expenditures makes sense as

the benefits are received over many years so the burden of paying for them should be spread over many years

the use of fiscal policy to stabilize the economy is limited because

the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way

The fastest growing category of government expenditure is

transfer payments

which of the following is the largest category of federal government expenditures?

transfer payments

tax cuts on business income ____________ aggregate demand

would increase