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