Exam 13: Fiscal Policy in the Short Run

If exchange rates are floating,an expansionary fiscal policy in Canada will cause the dollar to ________ relative to other currencies and cause net capital outflows to ________.

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 and the government underestimates the severity of the recession when implementing fiscal policy,the output gap will ________ and the rate of inflation will ________ than if the government had correctly estimated the recession's severity.

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,the economy entering a recession would best be represented as a movement from ________ if there are no automatic stabilizers,and from ________ if there are automatic stabilizers.

A key reason that most people did not anticipate the severity of the Great Recession is that

Fiscal policy refers to changes in

Under a fixed exchange rate system,an expansionary fiscal policy such as an increase in government expenditures will lead to a(n)________ in real GDP and a ________ inflation rate.

Three policy lags limit the effectiveness of monetary policy: recognition lags,implementation lags,and impact lags.Of these three policy lags,fiscal policy is impacted by

C = $5 million + 0.9(1 - 0.1)Y I = $7 million G = $6 million NX = $1 million Based on the above data,the equilibrium level of GDP is

What are the effects of an expansionary fiscal policy on interest rates and output in an open economy with floating exchange rates?

The federal government debt as a percentage of GDP fell during

Figure 13.3 Panel (a) Panel (b) -Refer to Figure 13.3.If exchange rates are floating,fiscal policy designed to reduce the federal deficit and the typical central bank response to the change in inflation caused by the fiscal policy would best be represented by a movement from ________ in panel (a)and a corresponding movement from ________ in panel (b).

Briefly explain how policy lags related to the expansionary fiscal policy adopted by the Canadian government during the last recession.

If the MPC is 0.6 and the tax rate is 20%,a $200 decrease in autonomous net exports will decrease equilibrium income by

C = $40 million + 0.6(1 - 0.2)Y I = $35 million G = $31 million NX = -$6 million Based on the above data,the value of the expenditure multiplier is

Forward-looking households may reduce consumption expenditures today if they believe that the government is currently

An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

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

Other things equal,an increase in transfer payments will ________ consumption expenditures,which leads to ________ in output and employment.

The deliberate change in taxes,transfer payments,or government expenditures to achieve macroeconomic policy objectives is known as

Figure 13.1 -Refer to Figure 13.1