Macro Homework 5

The​ short-run Phillips curve exhibits ________________​, whereas the​ long-run Phillips curve shows _______________.

a trade-off between inflation and unemployment, no trade-off between inflation and unemployment

The hypothetical information in the following table shows what the situation will be in 2019 if the federal government does not use fiscal​ policy: If Congress and the president want to keep real GDP at its potential level in​ 2019, they should use _______________, which would mean ___________________.

an expansionary fiscal policy, increasing government spending or cutting taxes

Defense spending is increased. This is

not part of fiscal policy.

Families are allowed to deduct all their expenses for daycare from their federal income taxes. This is

not part of fiscal policy.

The Federal Reserve lowers the target for the federal funds rate. This is

not part of fiscal policy.

The corporate income tax rate is increased. This is

part of a contractionary fiscal policy.

The individual income tax rate is decreased. This is

part of an expansionary fiscal policy.

If the government does not take any policy​ actions, then, in​ 2019, the value of real GDP will be ​$_______ trillion and the value of the price level will be ___________

18.2, 117

If the government takes no policy​ actions, the inflation rate in 2019 will be __________

2.6%

2A. The graph to the right shows a situation in which the economy was in equilibrium at potential GDP​ (at point​ A) when the demand for housing sharply declined. What actions can Congress and the president take to move the economy back to potential​ GDP?

Increase government spending or decrease taxes.

In order to bring real GDP to its potential level in​ 2019, the government can engage in _______________ fiscal policy by either ___________ government spending or __________ taxes.

expansionary, increasing, decreasing

If the government uses fiscal policy to keep real GDP at its potential​ level, the inflation rate in 2019 will be __________

4.4%

Which of the following is an example of an expansionary fiscal​ policy?

A decrease in taxes.

Suppose the economy is in equilibrium in the first period at point​ (A). In the second​ period, the economy reaches point​ (B). We would expect the federal government to pursue what type of policy in order to move AD 2AD2 to AD Subscript 2 comma policyAD2, policy and reach equilibrium​ (point C) in the second​ period?

Expansionary Fiscal Policy

If the federal​ government's policy is​ successful, what is the effect on the following macroeconomic​ indicators? Actual real GDP ____________ Potential Real GDP ____________ Price Level ____________ Unemployment ______________

increases does not change increases decreases

Each year that the federal government runs a​ deficit, the federal debt ___________. Each year that the federal government runs a​ surplus, the federal debt __________.

grows, shrinks

If Congress and the president are successful in keeping real GDP at its potential level in​ 2019, state whether each of the following will be​ higher, lower, or the same as it would have been if they had taken no​ action: Real GDP will be ___________ Potential real GDP will be __________ The inflation rate will be ________ The unemployment rate will be ___________

higher the same higher lower