Fiscal Policy ALA

Mathematically, the tax multiplier equals: Multiple choice question.

-MPC/(1 - MPC).

A phase of the business cycle characterized by increasing real GDP income and employment is called:

An expansion

With demand-pull inflation, active fiscal policy calls for government purchases.

Blank 1: reducing, lowering, cutting, decreasing, less, fewer, lesser, low, or decreased

Real GDP expenditures is given by:

Consumption (C) + Gross Investment (I) + Government Purchases (G) + Net Exports (NX).

The application of fiscal policy to increase aggregate demand is called fiscal policy.

Expansionary

This policy involves increasing government purchases and/or decreasing taxes.

Expansionary fiscal policy

This policy involves involves increasing government purchases and/or decreasing taxes.

Expansionary fiscal policy

Changes in government purchases and/or taxes designed to achieve full employment and low inflation is called:

Fiscal policy

Fiscal policy relies on three assumptions: 1. Recognizing the start of a recession. 2. Government quickly determines effective policy. 3. The policy is immediately effective. Which of these assumptions hold in the real world?

None of the assumptions hold in the real world.

Which of the following describes the short-term fluctuations experienced in the economy due to changes in levels of economic activity?

The business cycle

A decline in real output for at least two consecutive quarters is called:

a recession

Changes to taxes and spending that occur without direct action by the government are called

automatic; stabilizers

The application of fiscal policy to decrease aggregate demand is called fiscal policy.

contractionary

Suppose that the economy is in a long-run equilibrium at a price level of 100 and full-employment real GDP of $500 billion. An expansion occurs resulting from a $100 billion increase in aggregate demand. In order to restore the economy to full employment given a MPC of 0.80, government purchases would need to:

decrease by $20 billion.

Suppose that the economy is in a long-run equilibrium at a price level of 100 and full-employment real GDP of $500 billion. An expansion occurs resulting from a $100 billion increase in aggregate demand. In order to restore the economy to full employment given a MPC of 0.80, government purchases would need to:

decrease by $20 billion. (see Discord)

Suppose that an economy is in long-run equilibrium at a price level of 100 and a full-employment real GDP of $520 billion. A recession occurs resulting from a $120 billion decrease in aggregate demand. In order to restore the economy to full employment given an MPC of 0.75, taxes would need to:

decrease by 40 billion

In the short run, in order to stimulate aggregate (blank) and avoid falling output and prices, the government could reduce taxes.

demand

Active fiscal policy calls for reducing government purchases in case of:

demand-pull inflation

The level of real GDP produced in an economy when it is operating at the natural rate of unemployment is called full (blank) GDP.

employment

The level of real GDP produced in an economy when it is operating at the natural rate of unemployment is called full (blank) GDP. (Use one word for the blank.)

employment

The level of real GDP produced in an economy when it is operating at the natural rate of unemployment is called full __ GDP

employment

As an economy (blank), the number of people who rely on government programs such as Medicaid, food stamps, and housing assistance fall reducing government expenditures.

expands

Consumption (C) + Gross Investment (I) + Government Purchases (G) + Net Exports (NX) characterizes real GDP _____

expenditures/real GDP expenditures.

Changes in government purchases and/or taxes designed to achieve full employment and low inflation is called (blank) policy.

fiscal

Government (blank) policy has limitations that reduce its effectiveness and may even cause the opposite of what was intended.

fiscal

The level of real GDP produced in an economy when it is operating at the natural rate of unemployment is called: Multiple choice question.

full-employment GDP.

The level of real GDP produced in an economy when it is operating at the natural rate of unemployment is called: Multiple choice question.

full-employment gdp

One of the most frequently used tools of fiscal policy is changing:

government purchases

If the economy is experiencing a recession, the goal of fiscal policy will be to:

increase aggregate demand.

Suppose that the economy is in a long-run equilibrium at a price level of 100 and full-employment real GDP of $600 billion. An expansion occurs resulting from a $80 billion increase in aggregate demand. In order to restore the economy to full employment given a MPC of 0.80, taxes would need to:

increase by $20 billion.

Suppose that the economy is in a long-run equilibrium at a price level of 100 and full-employment real GDP of $500 billion. A recession occurs resulting from a $100 billion decrease in aggregate demand. In order to restore the economy to full employment given a MPC of 0.80, government purchases would need to: Multiple choice question.

increase by 20 billion

Suppose that the economy is in a long-run equilibrium at a price level of 100 and full-employment real GDP of $600 billion. An expansion occurs resulting from a $80 billion increase in aggregate demand. In order to restore the economy to full employment given a MPC of 0.80, taxes would need to:

increase by 20 billion

When the government borrows money so it can increase government spending or decrease taxes,:

it increases the demand for loanable funds.

Money that is available in an economy for the private sector and government to borrow is called (blank) funds

loanable

The concept that an additional dollar of expenditures will result in the creation of more than one dollar's worth of real GDP is called the effect.

multiplier

Exports minus imports gives us (blank) exports.

net

In the United States, the structure of taxation and social safety-net programs:

provides an automatic response to changes in real GDP that mirrors active fiscal policy.

When an economy is producing above full employment, the goal of fiscal policy will be to: Multiple choice question.

reduce aggregate demand

When an economy is producing above full employment, the goal of fiscal policy will be to:

reduce aggregate demand.

As an economy expands, the number of people who rely on government programs such as Medicaid, food stamps, and housing assistance fall (blank) government expenditures

reducing

One of the most frequently used tools of fiscal policy is changing:

taxes/government purchases

The multiplier effect is:

the concept that an additional dollar of expenditures will result in the creation of more than one dollar's worth of real GDP.

Crowding out refers to:

the process by which an increase in government borrowing results in less borrowing.

When income falls, average tax rates fall, which stimulates aggregate demand and reduces (blank)

unemployment