Exam 13: A: Fiscal Policy, Deficits, Surpluses, and Debt

Complete the table below by stating whether the direction of discretionary fiscal policy was contractionary (C), expansionary (E), or neither (N), given the hypothetical budget data for an economy.

Evaluate: A tax system in which those with higher incomes pay more taxes is progressive.

Give a brief definition of fiscal policy? What are its economic goals?

In Year 1, the full-employment budget showed a deficit of $100 billion and the actual budget showed a deficit of $150 billion.In Year 2, the full employment budget showed a deficit of $75 billion and the actual budget showed a deficit of $100 billion.Based on the data, what can be concluded about the direction of fiscal policy and the performance of the economy between Years 1 and 2?

In Year 1, the full-employment budget showed a deficit of $100 billion and the actual budget showed a deficit of $150 billion.In Year 2, the full employment budget showed a deficit of $125 billion and the actual budget showed a deficit of $150 billion.Based on the data, what can be concluded about the direction of fiscal policy and the performance of the economy between Years 1 and 2?

What does the "full-employment budget" measure and of what significance is this concept? (Note: full-employment budget and cyclically adjusted budget are synonyms.)

In Year 1, the full-employment budget showed a deficit of $100 billion and the actual budget showed a deficit of $150 billion.In Year 2, the full employment budget showed a deficit of $125 billion and the actual budget showed a deficit of $175 billion.Based on the data, what can be concluded about the direction of fiscal policy and the performance of the economy between Years 1 and 2?

Which fiscal policy, government spending or taxes, is preferable?

Give two examples of expansionary fiscal policy.What will be the effect on government surplus/deficit?

What is the difference between the actual deficit, the full-employment deficit, and the cyclical deficit?

Describe what occurred during the European Sovereign Debt crisis from 2010 till mid-2017.

The table below gives data on interest rates and investment demand in a hypothetical economy.Figures are in billions. (a) Use the I_d1 schedule.Assume that the government needs to finance a budget deficit and this public borrowing increases the interest rate from 5% to 6%.How much crowding-out of private investment will occur? (b) Now assume that the deficit is used to improve the performance of the economy, and that as a consequence the investment-demand schedule changes from I_d1 to I_d2.At the same time, the interest rate rises from 5% to 6% as the government borrows money to finance the deficit.How much crowding-out of private investment will occur in this case? (c) Graph the two investment-demand schedules on the graph below and show the difference between the two events.Put the interest rate on the vertical axis and the quantity of investment demanded on the horizontal axis.

What information would be important for assessing the size of the public debt beside the absolute amount of the public debt?

Can a large public debt cause a nation to go bankrupt? Explain.

During which phases of the business cycle would fiscal policies that reduce budget deficits (or even increase surpluses) be appropriate?

In Year 1, the full-employment budget showed a deficit of $100 billion and the actual budget showed a deficit of $125 billion.In Year 2, the full employment budget showed a deficit of $100 billion and the actual budget showed a deficit of $150 billion.Based on the data, what can be concluded about the direction of fiscal policy and the performance of the economy between Years 1 and 2?

Why do some economists, who favour government intervention to address high unemployment or demand-pull inflation, nonetheless reject the use of fiscal policy?

If the public debt is a debt that we owe to ourselves, then there are obviously no problems connected with such a debt.Critically evaluate.

Identify five problems or complications that arise in the implementation of fiscal policy.

Under a particular tax system, the government collects $40 billion in tax revenues when GDP is $800 billion and $45 billion when GDP is $900 billion.Is this tax system regressive, proportional, or progressive?