Econ 103 final. Ch 16

Which of the following would be considered a fiscal policy​ action?

A tax cut is designed to stimulate spending during a recession.

Refer to the figure. An increase in taxes would be depicted as a movement from​ _______, using the basic AD-AS model in the figure.

B to A

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.

Suppose real GDP is​ $14 trillion and potential real GDP is​ $14.4 trillion. An increase in government purchases of​ $400 billion would cause real GDP to​ ________ potential real GDP​ (assuming a constant price​ level).

be 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.

Consider the hypothetical information in the table for potential real​ GDP, real​ GDP, and the price level in 2022 and in 2023 if Congress and the president do not use fiscal policy. If Congress and the president want to keep real GDP at its potential level in​ 2023, they should

decrease income taxes.

Decreasing government spending​ ________ the price level and​ ________ equilibrium real GDP.

decreases; decreases

Refer to the figure. In the dynamic model of AD-AS in the​ figure, if the economy is at point A in year 1 and is expected to go to point B in year​ 2, Congress and the president would most likely

increase government spending

A recession tends to cause the federal budget deficit to​ ________ because tax revenues​ ________ and government spending on transfer payments​ _________.

increase; fall; rise

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.

If the absolute value of the tax multiplier equals​ 1.6, real GDP is​ $13 trillion, and potential real GDP is​ $13.4 trillion, then taxes would need to be cut by​ ________ to restore the economy to potential real GDP.

​$250 billion

Tax reduction and simplification should​ ________ long−run aggregate supply and​ ________ aggregate demand.

​increase; increase

If the federal​ government's expenditures are less than its tax​ revenues, then

a budget surplus results.

In the graph to the​ right, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by Congress and the​ president?

a decrease in income taxes

The government purchases multiplier equals the change in​ ________ divided by the change in​ ________.

equilibrium real​ GDP; government purchases

Expansionary fiscal policy involves

increasing government purchases or decreasing taxes.

Consider the hypothetical information in the table for potential real​ GDP, real​ GDP, and the price level in 2022 and in 2023 if Congress and the president do not use fiscal policy. If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in​ 2023, which of the following will be lower than if Congress and the president had taken no​ action?

real GDP and the inflation rate

Refer to the figure. In the dynamic model of AD-AS in the​ figure, if the economy is at point A in year 1 and is expected to go to point B in year​ 2, and no fiscal or monetary policy is​ pursued, then at point B Part 2

the unemployment rate is very low.

The fastest growing category of government expenditure is

transfer payments.