Suppose the economy is initially in long-run equilibrium. What are the long-run effects on potential output of an expansionary fiscal policy? O a. Potential output will fall below its starting point because of the crowding out of private investment. O b. Potential output will adjust to a higher level.

Suppose the economy is initially in long-run equilibrium. What are the long-run effects on potential output of an expansionary fiscal policy? O a. Potential output will fall below its starting point because of the crowding out of private investment. O b. Potential output will adjust to a higher level.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 2.9P

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Similar questions

Which of the following is carried out in an expansionary fiscal policy? O a. Higher taxes and lower government expenditure O b. Lower taxes and higher government expenditure O c. Higher taxes and higher government expenditure O d. Lower taxes and lower government expenditure.
The graph below depicts the full-employment level of output and the actual level of real GDP. Real GDP Business Cycle 01 2 3 4 5 Year 6 7 8 9 Y* (9,55) 10
Which of the following statements is true? O A balanced budget would not affect income because an increase in government spending is exactly matched by an increase in taxes. OIf crowding out exists, contractionary fiscal policy will cause the aggregate demand curve to shift in by more" than indicated by the government spending multiplier. O When aggregate expenditures are greater than real GDP, there will be inventory accumulation. O The flatter the aggregate supply curve, the less the amount of government spending necessary to close a $1 billion GDP gap.
Which of the following is not a weakness of fiscal policy? O a. Fiscal policy might have undesirable long-term effects on short-run aggregate supply. b. Time lags in fiscal policy are long and variable. c. Fiscal policy works only during periods of stagflation. O d. Implementation of policy is difficult. e. Fiscal policy often affects only current income, but many economic decisions are made on the basis of permanent income.
Which of the following would be classed as an expansionary fiscal policy? O A. An increase in the money supply Ов. A reduction in the number of goods exempted from VAT An increase in government taxation OD. An increase in government expenditure
Which of the following statements is not true? A decrease in federal income tax rates is an example of fiscal policy that affects GDP through consumption adjustments. O Automatic stabilizers act to moderate business cycles primarily through the personal income and consumption channels. O Other things equal, the steeper the slope of the aggregate supply curve, the less effective will be the expansionary fiscal policy. When aggregate expenditure (AE) exceed Real GDP, inventory levels rise unexpectedly, which sends a signal to firms that they have overproduced, so they cut back on production.
Assume the government makes no fiscal policy changes when the economy experiences a downturn. Which outcome would be expected? O Government expenditure to be higher and tax revenues to be lower, probably leading to a budget deficit. Government expenditure to be lower and tax revenues to be lower, probably leading to a budget surplus. O Government expenditure to be higher and tax revenues to remain the same, probably leading to a budget deficit. Government expenditure to be higher and tax revenues to be lower, probably leading to a budget surplus. O Government expenditure to remain the same and tax revenues to be lower, probably leading to a budget deficit.
Suppose real GDP is $1.7 trillion, potential real GDP is $1.8 trillion, and the federal government plans to use fiscal policy to restore the economy to potential real GDP. Assuming a constant price level, the federal government would need to increase government purchases by more than $100 billion. O None of the above is correct. The federal government must decrease government purchases in this case. O $100 billion. O less than $100 billion.
To minimize GDP fluctuations, the government should run a budgetin times of recession and a budget in times of boom. O a. Deficit; deficit O b. Deficit; surplus O c. Surplus; surplus O d. Surplus; deficit
Given an upward-sloping short-run AS curve, expansionary fiscal policy (ceteris paribus) will result in: (i) Higher prices in the short run (ii) Higher output in the short run (iii) Higher prices in the long run (iv) Higher output in the long run O a. Only (i) and (ii) O b. Only (iii) and (iv) O c. Only (ii) and (iii) O d. Only (i) and (iv)
The Canadian government spending in recent years has resulted in persistent deficits. This has made it so that they have had to increase borrowing. They must be careful since this will lead to Select one: O a Crowding out O b. Transfer payments Oc. Implicit liabilities Od Automatic stabilizers Examples of automatic stabilizers set up in the economy would be everything listed EXCEPT for: Select one: O a. Child daycare benefits b. The prices of goods O c. Income Taxes O d. Unemployment payments Clear my choice
If the government were to try to offset surplus years with deficit years over the business cycle, this would result in O A. a reduction in investment capital. O B. a higher debt-to-GDP ratio. OC. an annually balanced budget. O D. a structurally balanced budget. O E. a cyclically balanced budget.