question
Fiscal policy refers to
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discretionary changes in government spending and taxes
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When an economist is using the term "discretionary" as in discretionary spending, they are referring to the
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amount of government spending decided upon by Congress or the government's ruling body
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You are a member of Congress. The economy is currently experiencing a recessionarya recessionary gap. Which of the following are fiscal policies that Congress can enact in an attempt to correct the economy
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an increase in government spending and a decrease in taxes
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Which of the following is an example of a discretionary fiscal policy that could be used to return the economy to full-employment real GDP?
answer
an increase in government spending
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Suppose that Congress enacts a significant tax cut with the expectation that this action will stimulate aggregate demand and push up real GDP in the short run. In fact, however, neither real GDP nor the price level changes significantly as a result of the tax cut. This outcome can be explained by all of the following, except one. Which one of the following is the exception
answer
automatic stabilizers
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In May and June of 2008, the federal government issued one-time tax rebateslong dash—checks returning a small portion of taxes previously paidlong dash—to millions of U.S. residents, and U.S. real disposable income temporarily jumped by nearly $500 billion.
However, household real consumption spending did not increase in response to the short-lived increase in real disposable income because
However, household real consumption spending did not increase in response to the short-lived increase in real disposable income because
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the one-time tax rebate failed to increase the recipients' permanent income which determines an individual's current consumption
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In May and June of 2008, the federal government issued one-time tax rebateslong dash—checks returning a small portion of taxes previously paidlong dash—to millions of U.S. residents, and U.S. real disposable income temporarily jumped by nearly $500 billion.Which of the following economic theories can be used to account for this apparent non-relationship between real consumption and real disposable income in the late spring of 2008
answer
the permanent income hypothesis
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It is late 2017, and the U.S. economy is showing signs of slipping into a potentially deep recession. Government policymakers are searching for income-tax-policy changes that will bring about a significant and lasting boost to real consumption spending.
According to the logic of the permanent income hypothesis, the proposed income-tax-policy changes should involve
According to the logic of the permanent income hypothesis, the proposed income-tax-policy changes should involve
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long-lasting tax reductions
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Expansionary fiscal policy that creates a budget deficit can lead to crowding out. This crowding out effect is exhibited by
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increased government expenditures and decreased investment
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Increased government spending crowds out investment due to
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higher interest rates
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Crowding out occurs when
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increases in government spending cause interest rates to rise, reducing investment and consumption
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Suppose that the economy is presently operating at full employment. If there is a decreasea decrease in national income, which of the following will occur automatically
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a decrease in tax revenues
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Automatic stabilizers
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cause changes in the economy without the action of Congress and the President
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The purpose of automatic stabilizers is to
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lessen the impact of unemployment in a recession and slowdown inflation during an expansion
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Which of the following is not an automatic stabilizer
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Defense spending
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A progressive tax system is one in which the tax rates
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increase as income increases
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Suppose that the economy is depicted by the following relationship:
Expenditures = C + I + G + X
where: C = $100 + 0.900.90 (Yminus−T)
G = $nbsp 500
T = $nbsp 500
I = $nbsp 200
X = $nbsp 150
The economy is in equilibrium at a level of real GDP or income of
Expenditures = C + I + G + X
where: C = $100 + 0.900.90 (Yminus−T)
G = $nbsp 500
T = $nbsp 500
I = $nbsp 200
X = $nbsp 150
The economy is in equilibrium at a level of real GDP or income of
answer
5000
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Suppose that the economy is depicted by the following relationship:
Expenditures = C + I + G + X
where: C = $100 + 0.900.90 (Yminus−T)
G = $nbsp 500
T = $nbsp 500
I = $nbsp 200
X = $nbsp 150Now suppose that the government decides to increase government spending by $50.
What is the new equilibrium level of GDP or income?
Expenditures = C + I + G + X
where: C = $100 + 0.900.90 (Yminus−T)
G = $nbsp 500
T = $nbsp 500
I = $nbsp 200
X = $nbsp 150Now suppose that the government decides to increase government spending by $50.
What is the new equilibrium level of GDP or income?
answer
5500
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