fiscal policy

Question 1

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability, healthy rates of economic growth, and high employment.

Answer 1

taxes; purchases

Question 2

Fiscal policy refers to the:

Answer 2

spending and taxing policies used by the government to influence the level of economy activity.

Question 3

he largest source of revenue for the Australian federal government is:

Answer 3

personal income tax.

Question 4

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

Answer 4

taxes.

Question 5

An increase in government purchases of $200 billion will shift the aggregate demand curve to the right by:

Answer 5

more than $200b

Question 6

what is an automatic stabiliser?

Answer 6

a tax or form of government expenditure that has the effect of reducing the size of business cycle fluctuations.

Question 7

A federal budget deficit acts as an automatic stabiliser because

Answer 7

government tax revenues decrease during a recession

Question 8

Crowding out results in:

Answer 8

higher interest rates, a higher exchange rate, and lower net exports

Question 9

The dynamic aggregate demand and aggregate supply model takes into account that

Answer 9

1. the economy experiences continuing inflation, with the price level rising every year
2. the economy experiences long-run growth, with the LRAS curve shifting to the right every year

Question 10

To fight economic contractions and recessions the government can:

Answer 10

increase government purchases or cut taxes

Question 11

expansionary fiscal policy causes the aggregate demand
(AD) curve to

Answer 11

shift to the right by more than it otherwise would, raising the level of real GDP and the price level.

Question 12

To fight rising inflation, the government can

Answer 12

decrease government purchases or raise taxes

Question 13

contractionary fiscal policy causes the aggregate demand curve to…

Answer 13

shift to the right by less than it otherwise would, reducing the increase in real GDP and the price level.

Question 14

Autonomous expenditure is

Answer 14

expenditure that does not depend on the level of real GDP.

Question 15

Induced expenditure is

Answer 15

expenditure that depends on the level of real GDP.

Question 16

An autonomous change in expenditure will cause

Answer 16

rounds of induced changes in expenditure. Therefore, an autonomous change in expenditure will have a multiplier effect on equilibrium GDP

Question 17

The ________ is the process by which an increase in autonomous expenditure leads to a larger increase in real GDP.

Answer 17

multiplier effect

Question 18

is the ratio of the change in equilibrium GDP to the change in autonomous expenditure.

Answer 18

the multiplier

Question 19

Because of the multiplier effect, an increase in government purchases or a cut in taxes will have a multiplied effect on

Answer 19

equilibrium real GDP.

Question 20

The government purchases multiplier is equal to the

Answer 20

change in equilibrium real GDP divided by the change in government purchases

Question 21

The tax multiplier is equal to the change in equilibrium real GDP divided by the change in

Answer 21

taxes

Question 22

Increases in government purchases and cuts in taxes have a _____ multiplier effect on equilibrium real GDP

Answer 22

Positive

Question 23

Decreases in government purchases and increases in taxes

Answer 23

have a negative multiplier effect on equilibrium real GDP.

Question 24

what is crowding out

Answer 24

A decline in private expenditure as a result of an increase in government purchases

Question 25

A budget deficit occurs when the federal government’s expenditures are

Answer 25

greater than its tax revenues

Question 26

________ occurs when the federal government’s expenditures are less than its tax revenues.

Answer 26

budget surplus

Question 27

A budget deficit automatically ________ during economic contractions and recessions and ______ during economic expansions and booms.

Answer 27

increases
Decreases

Question 28

Government net debt is the difference between the amount of

Answer 28

funds the government borrows and the amount it lends

Question 29

The automatic movements in the federal budget help to stabilise the economy by

Answer 29

cushioning the fall in spending during contractions and recessions and restraining the increase in spending during expansions and booms.

Question 30

the structural budget defecit or surplus measures…

Answer 30

what the deficit or surplus would be if the economy were at potential GDP.

Question 31

Some fiscal policy actions are intended to have long-run effects by

Answer 31

expanding the productive capacity of the economy and increasing the rate of economic growth

Question 32

Because these policy actions primarily affect aggregate ____ rather than aggregate ______, they are sometimes referred to as _________

Answer 32

supply
demand
supply-side policies

Question 33

The difference between the pre-tax and post-tax return to an economic activity is known as the

Answer 33

tax wedge