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.