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Fiscal Policy

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting

Expansionary fiscal policy

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n)

Contractionary fiscal policy

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n)

Budget deficit

The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a

Decrease government spending and increase taxes

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion; (2) investment = $50 billion; (3) government purchases = $100 billion; and (4) net export = $20 billion. If the full-employment level of GDP for this economy is $620 billion, then what combination of actions would be most consistent with closing the GDP-gap here?

Increase government spending and decrease taxes

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $400 billion; (2) investment = $40 billion; (3) government purchases = $90 billion; and (4) net export = $25 billion. If the full-employment level of GDP for this economy is $600 billion, then what combination of actions would be most consistent with closing the GDP-gap here?

$20 billion

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by:

Increase taxes by $16 billion

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could:

Serves as an automatic stabilizer for the economy

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This relationship best describes how the progressive income tax system:

Transfer payments

The so-called "negative taxes" are better known as:

Is not subject to the timing problems of discretionary policy

One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy:

Contractionary and worsen the effects of the recession

Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget amendment that would require the Federal government to balance its budget during a recession would be:

Discretionary expansionary fiscal policy

The American Recovery and Reinvestment Act of 2009 is a clear example of:

Increases in government spending and decreases in taxes

The American Recovery and Reinvestment Act of 2009 included mostly:

Start of the recession and the time it takes to recognize that the recession has started

One timing problem with fiscal policy to counter a recession is a "recognition lag" that occurs between the:

Time fiscal action is taken and the time that the action has its effect on the economy

One timing problem with fiscal policy to counter a recession is an "operational lag" that occurs between the:

Increases in government spending may reduce private investment

The crowding-out effect suggests that:

Government borrows in the money market, thus causing an increase in interest rates

The crowding-out effect arises when:

Decrease the effectiveness of expansionary fiscal policy

The crowding-out effect works through interest rates to:

Increased by less than $100 billion

Assume that if there was no crowding-out, an increase in government spending would increase GDP by $100 billion. If there had been partial crowding-out, however, then GDP would have:

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