Ch 16 Review
If the tax multiplier is -1.5 and $200 billion tax increase is implemented, what is the change in GDP , holding everything else constant? (Assume the price level stays constant)
A $300 billion decrease in GDP
16-1. Suppose the economy is in a recession and expasionary fiscal policy is pursued. Using the static AD-AS model in the figure above, this would be depicted as a movement from
A to B
16-1. Suppose the economy is in the short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the static AD-AS model in the figure above, this would be depicted as a movement from
A to B
Refer to Figure 16-1. An increase in taxes would be depicted as a movement from (blank), using the static AD-AS model in the figure above
B to A
16-1. Suppose the economy is in a short0run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium. Using static AD-AS model in the figure above, this would be depicted as a movement from
C to B
16-1. Suppose the economy is in short-run equilibrium above potential GDP and wages and prices are rising. If contractionary policy is used to move the economy back to long run equilibrium, this would be depicted as a move from (blank) using the static AD-AS mode
C to B
Fiscal policy is determined by
Congress and the president
Which of the following is considered contractionary fiscal policy
Congress increases the income tax rate
Suppose congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced. What will happen to real equilibrium GDP?
Real equilibrium GDP will rise
Which of the following would be classified as fiscal policy
The federal government cuts taxes to stimulate the economy
If real GDP exceeded potential real GDP and inflation was increasing, which of the following would be an appropriate fiscal policy
an increase in taxes
Tax cuts on business income increase aggregate demand by increasing
business investment spending
The aggregate demand curve will shift to the left (blank) the initial decrease in government purchases
by more than
Expansionary fiscal policy
can be effective in the short run
The government purchases multiplier equals change in (blank) divided by the change in (blank)
equilibrium real GDP; government purchases
The tax multiplier equals the change in (blank) divided by the change in (blank)
equilibrium real GDP; taxes
Fiscal policy refers to
federal taxes and purchases that are intended to achieve macroeconomics policy objectives
An increase in government purchases will increase aggregate demand because
government expenditures are a component of aggregate demand
If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in
government purchases
Congress and the president carry out fiscal policy through changes in
government purchases and taxes
Which of the following is an objective of fiscal policy
high rates of economic growth
Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be (blank) and real GDP to be (blank)
higher;higher
Which of the following would be most likely to induce Congress and the president to conduct contractionary fiscal policy?
increase in inflation
Expansionary fiscal policy involves
increasing government purchases or decreasing taxes
The multiplier effect refers to the series of
induced increases in consumption spending that result from an initial increase in autonomous expenditures
Which of the following would NOT be considered an automatic stabilizer
legislation increasing funding for job retraining passed during a recession
Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion. To move the economy back to potential GDP, Congress should
lower government purchases by an amount less than $200 billion
Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be (blank) and real GDP to be (blank)
lower;lower
Crowding out refers to a decline in (blank) as a result of an increase in (blank)
private expenditures; government purchases
Figure 6-4. In the graph above, the shift AD 1 to AD 2 represents the total change in aggregate demand. If government purchases increased by $50 billion, then the distance from point A to point B (blank) $50 billion
would be greater than
Tax cuts on business income (blank) aggregate
would increase
