Exam 13: Fiscal Policy in the Short Run

What is a cyclically adjusted budget deficit or surplus,and how is it used to determine whether discretionary fiscal policy is expansionary or contractionary?

Figure 13.1 -Refer to Figure 13.1.All else equal,if the economy is in a recession,expansionary fiscal policy would result in a movement from

A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession are examples of

Which of the following would be classified as fiscal policy?

If the MPC is 0.5 and the tax rate is 10%,a $500 increase in autonomous government purchases will increase equilibrium income by

Explain the differences between expansionary and contractionary fiscal policies,and list the typical actions that are used for expansionary and contractionary fiscal policies.

Which of the following would not be considered an automatic stabilizer?

Figure 13.2 -Refer to Figure 13.2.Assume the economy is initially in equilibrium with real GDP equal to potential GDP.Other things equal,if the economy enters a recession,the inflation rate would ________ and the output gap would ________ if there are,as opposed to are not,automatic stabilizers in the economy.

Under a fixed exchange rate system,an expansionary fiscal policy is

Crowding out is a reduction in private investment caused by government budget deficits,and may partially offset the expansionary effects of fiscal policy.The exact degree of crowding out depends on all of the following except

Explain the differences between discretionary fiscal policy and automatic stabilizers,and give one example of each.

What is the goal of fiscal policy,and what tools have policymakers traditionally used to conduct fiscal policy?

The automatic budget deficits and budget surpluses that occur in the federal budget over the business cycle

Holding all else constant,a decrease in consumption taxes,such as sales taxes or a VAT,will ________ aggregate expenditure and ________ employment.

Expenditure and tax multipliers are likely to be large

Other things equal,a decrease in the personal income tax rate will ________ disposable income,which leads to ________ in output and employment.

Identify whether each of the following policies is (1)an example of a discretionary fiscal policy,(2)an example of an automatic stabilizer,or (3)not a fiscal policy. a. Food stamps b. Government spending on rebuilding airports c. Tax credits for the purchase of energy-efficient appliances d. Changing the required reserve ratio e. The progressive income tax system

Suppose the federal budget deficit for the year was $500 billion and the economy were in a recession.If the economy had been at potential GDP,it is estimated that tax revenue would have been $350 billion higher and government spending on transfer payments would have been $200 billion lower.Using these estimates,the cyclically adjusted budget

Suppose the economy is in a recession and the government decides it needs to reduce the budget deficit.Other things equal,this would tend to