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Exam 16: Fiscal Policy

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Question 151

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The federal government debt as a percentage of GDP fell

A) from 2002-2007.
B) from 1980-1992.
C) during World War I and World War II.
D) from 1998-2001.
E) during the Great Depression.

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Question 152

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If the economy is growing beyond potential real GDP,which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in

A) the money supply and a decrease in interest rates.
B) government purchases.
C) oil prices.
D) taxes.

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Question 153

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The total value of U.S.Treasury bonds outstanding equals

Table 16-4 -Refer to Table 16-4.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2018 and in 2019 if Congress and the president do not use fiscal policy.If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2019,which of the following will be lower than if Congress and the president had taken no action?

In absolute value,the tax multiplier is greater than the government purchases multiplier.

Illustrate and explain the effects of tax reduction and simplification using the dynamic aggregate demand and supply model.To simplify the analysis,assume that aggregate demand is not affected by the tax cut.

If the absolute value of the tax multiplier equals 1.6,real GDP is $13 trillion,and potential real GDP is $13.4 trillion,then taxes would need to be cut by ________ to restore the economy to potential real GDP.

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

An increase in the money supply is a discretionary fiscal policy which will increase aggregate demand.

What is the difference between fiscal policy and monetary policy?

A change in consumption spending caused by income changes is ________ change in spending,and a change in government spending that occurs to improve roads and bridges is ________ change in spending.

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase ________ through changing ________.

Crowding out refers to a decline in ________ as a result of an increase in ________.

Tax reduction and simplification should ________ long-run aggregate supply and ________ aggregate demand.

Figure 16-8 -Refer to Figure 16-8.In the graph above,suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B.Which of the following policies could Congress and the president use to move the economy to point C?

During 1970-1997,the U.S.federal government was

Figure 16-1 -Refer to Figure 16-1.Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium.Using the basic AD-AS model in the figure above,this would be depicted as a movement from

A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand.

In the case of an upward-sloping aggregate supply curve,the change in real GDP brought about by a change in government spending will be less than that predicted by the simple government purchases multiplier.

Table 16-2 -Refer to Table 16-2.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2018 and in 2019 if Congress and the president do not use fiscal policy.If Congress and the president want to keep real GDP at its potential level in 2019,they should