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Exam 13: Fiscal Policy

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Question 31

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Which factor is an automatic stabilizer?

A) military spending
B) unemployment compensation payments
C) disability payments to war veterans
D) Medicare payments

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Question 32

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If the current equilibrium output lies above potential output,then an appropriate fiscal policy would be to _____,which will shift the AD curve to the _____.

A) decrease government purchases;right
B) increase government purchases;left
C) decrease government purchases;left
D) raise tax rates;right

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Question 33

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Which factor is NOT a tool of fiscal policy?

Suppose the marginal propensity to consume is 0.8.If the government cut taxes by $100 billion,then real GDP would increase by $500 billion.

The federal government's LARGEST source of revenue is:

An increase in government transfer payments of $100 billion and a tax cut of $100 billion will have equal effects on the budget balance and unequal effects on real GDP.

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75,they should increase government purchases of goods and services by $75 billion.

Use the following to answer questions: -(Figure: Fiscal Policy Choices) Refer to Figure: Fiscal Policy Choices.If the government uses discretionary fiscal policy for the economy in panel (b) when real GDP is Y₁,government spending is likely to be _____ and taxes are likely to be _____.

Consumer spending will likely fall if:

If the marginal propensity to consume is 0.75 and government purchases of goods and services decrease by $30 billion,real GDP will:

A change in taxes shifts the aggregate demand curve by less than a change in government spending for goods and services and has a smaller effect on real GDP.

When the government decreases spending,the:

Contractionary fiscal policy shifts the aggregate demand curve to the _____ and is used to close a(n) _____ gap.

Discretionary government spending is an automatic stabilizer.

Public debt is:

Suppose that the economy is in a recessionary gap.A $100 billion _____ is likely to increase real GDP by the LARGEST amount.

Use the following to answer questions: -(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps.Which equation measures a recessionary gap?

If the government increases its spending when the economy is expanding,automatic stabilizers _____ the government spending multiplier.

The cyclically balanced budget deficit doesn't fluctuate as much as the actual budget deficit.

The business cycle and the budget balance are unrelated.