Ch 13

Refer to the diagram, where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion, while the actual GDP is $300 billion, the cyclical deficit is $30 billion. $20 billion. $10 billion. $50 billion.

$10 billion.

A large public debt would not bankrupt the Federal government, because it can refinance the debt or increase taxes to pay the debt.

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Expansionary fiscal policy during a recession means cutting taxes, increasing government spending, or taking both actions.

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Actions by the federal government that decrease the progressivity of the tax system decrease the amount of government spending. increase the effect of automatic stabilizers. decrease the effect of automatic stabilizers. increase the multiplier effect.

decrease the effect of automatic stabilizers.

Due to automatic stabilizers, when the nation's total income rises, government transfer spending increases and tax revenues decrease. decreases and tax revenues increase. and tax revenues decrease. and tax revenues increase.

decreases and tax revenues increase.

Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD2 describes the current situation, appropriate fiscal policy would be to do nothing since the economy appears to be achieving full-employment real output. increase taxes and reduce government spending to shift the aggregate demand curve rightward from AD2 to AD3. increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level. reduce taxes and increase government spending to shift the aggregate demand curve from AD2 to AD1.

do nothing since the economy appears to be achieving full-employment real output.

The bursting of the dot-com bubble in 2000, along with the terrorist attacks in 2001, made the U.S. government decrease its cyclically adjusted budget deficit from 2000 to 2002. increase its cyclically adjusted budget surplus from 2000 to 2002. increase its cyclically adjusted budget deficit from 2000 to 2002. increase its actual budget surplus from 2000 to 2002.

increase its cyclically adjusted budget deficit from 2000 to 2002.

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could

increase taxes by $16 billion.

Most economists believe that fiscal policy is

not as good as monetary policy for month-to-month stabilization.

One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the start of the recession and the time it takes to recognize that the recession has started. start of a predicted recession and the actual start of the recession. time fiscal action is taken and the time that the action has its effect on the economy. time the need for the fiscal action is recognized and the time that the action is taken.

start of the recession and the time it takes to recognize that the recession has started.