Macro Quiz 9

Briefly explain whether each of the following is an example of​ (1) a discretionary fiscal​ policy, (2) an automatic​ stabilizer, or​ (3) not a fiscal policy.

1. The federal government increases spending on rebuilding the New Jersey shore following a hurricane. This is an example of NOT A FISCAL POLICY 2. The Federal Reserve sells Treasury securities. NOT A FISCAL POLICY 3. The total the federal government pays out for unemployment insurance decreases during an expansion. This is an example of an automatic stabilizer. 4. The revenue the federal government collects from the individual income tax declines during a recession. This is an example of an automatic stabilizer. 5. The federal government changes the required gasoline mileage for new cars. This is an example of not a fiscal policy. 6. Congress and the president enact a temporary cut in payroll taxes. This is an example of a discretionary fiscal policy.

Suppose the government increases expenditures by ​$30 billion and the marginal propensity to consume is 0.90. By how much will equilibrium GDP​ change?

300 billion

Are federal expenditures higher today than they were in​ 1960?

As a percentage of​ GDP, federal expenditures have increased since 1960.

Are federal purchases higher today than they were in​ 1960?

As a percentage of​ GDP, federal purchases have decreased since 1960.

What is the difference 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.

What is fiscal​ policy?

Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives.

The term​ "crowding out" refers to a situation​ where:

Government spending increases interest rates and decreases private investment.

What changes should they make if they decide a contractionary fiscal policy is​ necessary?

In this​ case, Congress and the president should enact policies that decrease government spending and increase taxes.

If Congress and the president decide an expansionary fiscal policy is​ necessary, what changes should they make in government spending or​ taxes?

In this​ case, Congress and the president should enact policies that increase government spending and decrease taxes.

Suppose the government increases taxes by ​$20 billion and the marginal propensity to consume is 0.50. By how will equilibrium GDP​ change?

The change in equilibrium GDP​ is: −20.0 billion.

Who is responsible for fiscal​ policy?

The federal government controls fiscal policy.

When actual GDP is below potential GDP the budget deficit increases because​ of:

an increase in transfer payments and a decrease in tax revenues.

Suppose that the economy is initially in​ long-run equilibrium at a point where real GDP is​ $40 billion and the price level is 8. ​Now, suppose that there is a​ $5 billion increase in government purchases and the government purchases multiplier equals 4. If government purchases​ increase, then the aggregate demand curve will shift to the _____ In​ particular, the aggregate demand curve will shift to the right by ______

right 20 billion

The national debt is best measured as

the total value of U.S. Treasury securities outstanding.