Question 1

If an economy is in an equilibrium with an inflationary gap, policy-makers can use

Accepted Answer

Decreasing government expenditure is a contractionary fiscal policy that can help close an inflationary gap by reducing aggregate demand.

Question 2

The balanced budget multiplier is based on the _{--------------------}point that the multiplier is larger than the multiplier so that an equal increase in government expenditure and taxes _{--------------------} aggregate demand.

Accepted Answer

The balanced budget multiplier suggests that an equal increase in government spending and taxes will increase aggregate demand because the spending multiplier is typically larger than the tax multiplier.

Question 3

The balanced budget multiplier applies when a $50 billion increase in government expenditure is financed by a $50 billion_{--------------------} in tax revenue and the balanced budget multiplier shows that in this case there is _{--------------------}effect on aggregate demand.

Accepted Answer

The answer of The balanced budget multiplier applies when a...

Question 4

As contrasted to the mainstream view, Keynesian economists believe that_{--------------------} than mainstream economists believe.

Accepted Answer

Keynesian economists believe that the multiplier effect is larger, meaning that fiscal stimulus has a more significant impact on the economy than mainstream economists typically assume.

Question 5

Government tax revenues_{--------------------} during an expansion and _{--------------------} during a recession, which leads to larger budget deficits during the_{--------------------} phase of the business cycle.

Accepted Answer

The answer of Government tax revenues_{--------------------} during an expansion and...

Question 6

When taxes are cut, aggregate demand _{--------------------}and aggregate supply _{--------------------}

Accepted Answer

When taxes are cut, disposable income increases, leading to an increase in aggregate demand. The increase in aggregate demand, in turn, leads to an increase in aggregate supply.

Question 7

The annual statement of the outlays, tax revenues, and surplus or deficit of the government of the
United States is the federal

Accepted Answer

The annual statement of the outlays, tax revenues, and surplus or deficit of the government of the United States is known as the federal budget.

Question 8

- In the figure above, to use fiscal policy to move the economy back to potential GDP, the government must increase government expenditure by _{--------------------}$1 trillion and/or decrease taxes by _{--------------------}$1 trillion.

Accepted Answer

To address a recessionary gap and move the economy back to potential GDP, the government should increase spending or decrease taxes by less than $1 trillion due to the multiplier effect, which amplifies the impact of fiscal policy changes.

Question 9

The supply-side effects of a change in taxes on labor income means that _{--------------------}in taxes on labor income shift the_{--------------------} .

Accepted Answer

An increase in taxes on labor income reduces the incentive for individuals to work, leading to a leftward shift in the labor supply curve.

Question 10

The federal budget

Accepted Answer

The federal budget can have a deficit (spending exceeds revenue), a surplus (revenue exceeds spending), or be balanced (revenue equals spending). There is no legal requirement for it to be balanced.

Question 11

Needs-tested spending is defined as

Accepted Answer

Needs-tested spending refers to government spending on programs that provide benefits to individuals who qualify based on their income or other specific criteria.

Question 12

The government expenditure multiplier reflects the magnification on_{--------------------} from a change in government expenditure on goods and services.

Accepted Answer

The government expenditure multiplier measures the effect of a change in government spending on the overall aggregate demand in the economy.

Question 13

Ignoring any supply-side effects, if government expenditure on goods and services decrease by $10 Billion and taxes decrease by $10 billion, then real GDP_{--------------------} and the price level _{--------------------}.

Accepted Answer

Government expenditure and taxes are both components of aggregate demand. A decrease in both will lead to a decrease in aggregate demand, which will lead to a decrease in real GDP. The decrease in aggregate demand will also lead to a decrease in the price level.

Question 14

An increase in government expenditure can_{--------------------} potential GDP and an increase in taxes can_{--------------------} potential GDP.

Accepted Answer

The answer of An increase in government expenditure can_{--------------------} potential...

Question 15

If the structural deficit is $800 billion and the cyclical deficit is $600 billion, the actual budget deficit Is _{--------------------}.

Accepted Answer

The actual budget deficit is the sum of the structural deficit and the cyclical deficit, which is $800 billion + $600 billion = $1,400 billion.

Question 16

If a tax cut increases aggregate demand more than aggregate supply, real GDP_{--------------------} and the price level _{--------------------}.

Accepted Answer

A tax cut increases aggregate demand, leading to higher real GDP and a higher price level if aggregate supply does not increase as much.

Question 17

Ignoring any supply-side effects, to close an inflationary gap of $100 billion with a government expenditure multiplier of 5, the government could

Accepted Answer

To close an inflationary gap of $100 billion with a government expenditure multiplier of 5, the government should decrease expenditure by $20 billion, as the multiplier effect will reduce the gap by $100 billion ($20 billion x 5 = $100 billion).

Question 18

If government expenditure increases by $200 billion and taxes simultaneously increase by $200 billion, then aggregate demand

Accepted Answer

When government expenditure increases, it directly boosts aggregate demand. The increase in taxes reduces disposable income, but the initial increase in government spending has a larger multiplier effect on aggregate demand than the decrease caused by the tax increase, leading to an overall increase in aggregate demand.

Question 19

If government expenditures on goods and services increases by $20 billion, then aggregate demand

Accepted Answer

An increase in government expenditures on goods and services typically leads to a multiplied increase in aggregate demand due to the multiplier effect, where the initial spending leads to further rounds of spending.

Question 20

The cyclical deficit is the portion of the deficit

Accepted Answer

The cyclical deficit is the part of the budget deficit that arises due to fluctuations in the economic cycle, specifically changes in real GDP.

Quiz 16: Fiscal Policy

If an economy is in an equilibrium with an inflationary gap, policy-makers can use

The balanced budget multiplier is based on the --------------------point that the multiplier is larger than the multiplier so that an equal increase in government expenditure and taxes -------------------- aggregate demand.

The balanced budget multiplier applies when a $50 billion increase in government expenditure is financed by a $50 billion-------------------- in tax revenue and the balanced budget multiplier shows that in this case there is --------------------effect on aggregate demand.

As contrasted to the mainstream view, Keynesian economists believe that-------------------- than mainstream economists believe.

Government tax revenues-------------------- during an expansion and -------------------- during a recession, which leads to larger budget deficits during the-------------------- phase of the business cycle.

When taxes are cut, aggregate demand --------------------and aggregate supply --------------------

The annual statement of the outlays, tax revenues, and surplus or deficit of the government of the United States is the federal

- In the figure above, to use fiscal policy to move the economy back to potential GDP, the government must increase government expenditure by --------------------$1 trillion and/or decrease taxes by --------------------$1 trillion.

The supply-side effects of a change in taxes on labor income means that --------------------in taxes on labor income shift the-------------------- .