Exam 13: Fiscal Policy Appendix Taxes and the Multiplier

If the economy is operating well below potential output, the cyclically adjusted budget balance deficit is _____ than the actual budget balance.

If the marginal propensity to consume is 0.8, the multiplier for taxes and transfer payments will be more than 5.

The budget balance is calculated as:

Social Security and Medicare:

When the unemployment rate increases, the budget:

Use the following to answer question 132: Figure: Short-Run Equilibrium -(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. The economy is in short-run equilibrium. To move the economy to potential GDP, the government should reduce its spending by an amount equal to:

Over the past few decades in the United States, large federal budget deficits most often have been caused by:

In the United States in 2013, public debt accounted for about _____ of GDP.

The stability pact signed in 1999 by the European nations that adopted the euro required each country to:

Real GDP equals $400 billion, the government collects 25% of any increase in real GDP in the form of taxes, and the marginal propensity to consume is 0.8. What is the value of the multiplier?

The income-expenditure model predicts that if the marginal propensity to consume is 0.8 and the federal government decreases spending by $200 billion, real GDP will fall by:

The larger the amount of outstanding public debt:

If government purchases decrease so the budget may be balanced, some government transfers will automatically increase, reducing the multiplier effect.

An increase in government transfer payments of $250 billion and a tax cut of $250 billion will have _____ effects on the budget balance and _____ effects on real GDP.

An automatic stabilizer that works when the economy contracts is:

Expansionary fiscal policy includes:

A change in taxes or a change in government transfers affects consumption through its effect on:

Assume that the marginal propensity to consume is 0.8. Government purchases of goods and services increase by $100 billion, financed by a $100 billion tax increase. Real GDP will:

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

Use the following to answer questions: Figure: Fiscal Policy II -(Figure: Fiscal Policy II) Look at the figure Fiscal Policy II. Suppose that this economy is in equilibrium at E₂. If there is a decrease in government transfers, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.