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Exam 11: Fiscal Policy

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Question 51

Multiple Choice

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The use of government taxes and spending to alter economic outcomes is known as

A) Monetary policy.
B) Fiscal policy.
C) Income policy.
D) Foreign trade policy.

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Question 52

Multiple Choice

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The U.S.government was given the power to tax income in the

A) Early 1700s.
B) Early 1800s.
C) Late 1800s.
D) Early 1900s.

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Question 53

Multiple Choice

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Refer to Figure 11.1.Assume aggregate demand is initially represented by AD₁ and full-employment output is $6.0 trillion.If aggregate demand increases by the amount of the GDP gap,equilibrium will occur at

In formulating fiscal policy it is necessary to specify the amount of the desired AD shift. The essence of fiscal policy entails deliberate shifting of the aggregate demand curve.The steps required to formulate fiscal policy are straightforward: (1)specify the amount of the desired AD shift (excess AD or AD shortfall)and (2)select the policy tools needed to induce the desired shift.

Crowding out is caused by

Ceteris paribus,if income was transferred from individuals with a low MPC to those with a high MPC,aggregate demand would

Assume the MPC is 0.75.To eliminate an AD shortfall of $200 billion,the government should

Why is the tax cut multiplier different from the purchases multiplier?

What will happen in the economy if the government increases spending and increases taxes by equal amounts to pay for that additional government spending?

In a diagram of aggregate demand and supply curves,the GDP gap is measured as the

If the multiplier equals 2 and the AD shortfall is $6 million,the desired fiscal stimulus is

An example of fiscal policy occurs when the government decreases corporate income taxes. Fiscal policy is the use of government taxes,including taxes on corporate income and spending to alter macroeconomic outcomes.

To eliminate an AD shortfall of $100 billion when the economy has an MPC of 0.80,the government should increase transfer payments by

The fiscal policy target for achieving full employment when an inflationary gap exists is known as the

The inflationary GDP gap differs from the AD excess when

Fiscal policy affects

If the AS curve is upward-sloping,the government alone should raise its purchases by the amount of the AD shortfall in order to reach full-employment equilibrium. As long as the AS curve slopes upward,the aggregate demand must increase by more than the size of the recessionary GDP gap in order to achieve full employment.However,it is not necessary for the government to make up the entire shortfall in aggregate demand.Every dollar of new autonomous government spending has a multiplied impact on induced aggregate demand.

The AD shortfall is the amount of additional aggregate demand needed to achieve full employment after allowing for

Assume the economy is at full employment and prices are reasonably stable.If the government wants to increase spending for public schools,which of the following policies will have the least inflationary impact?

Crowding out is the idea that an increase in government spending may cause a reduction in private sector spending. Crowding out occurs when a reduction in private sector borrowing (and spending)is caused by increased government borrowing.