Download AP Macro Economics - Spring Branch ISD

AP Macro Economics
Chapter 12
Fiscal Policy
Directions; use the information in the text to answer the following questions.
1. Countercyclical discretionary fiscal policy calls for deficits during ____________
and surpluses during periods of ________________________________________.
2. A politically conservative economist who favors smaller government would
recommend _____________________________________ during recession and
_____________________________________________________ during inflation.
3. If the MPS in an economy is .1, government could shift the aggregate demand
curve rightward by $40 billion by increasing government spending by $__ billion.
4. If the MPC in an economy is .8, government could shift the aggregate demand
curve rightward by $100 billion by decreasing taxes by $___________ billion.
5. A politically liberal economist who favored expanded government would
recommend ________________________________________________________
during recession and ___________________________________ during inflation.
6. Assume the economy is at full employment and that investment spending declines
dramatically. Under these conditions government fiscal policy should be directed
toward an excess of ___________________________________ over tax receipts.
7. A tax reduction of a specific amount will be more expansionary, the larger the
economy's __________________________.
8. A specific reduction in government spending will dampen demand-pull inflation
by a greater amount, the smaller the economy's __________________________.
9. _______________________________________________ means that with given
tax rates and expenditures policies, a rise in domestic income will reduce a budget
deficit or produce a budget surplus while a decline in income will result in a
deficit or a lower budget surplus.
Gross domestic
product (GDP)
$ 0
100
200
300
400
Consumption (C)
$ 40
120
200
280
360
10. Refer to the above data. If a lump-sum tax (the same tax amount at each level of
GDP) of $40 is imposed in this economy, the tax system is __________________.
11. Refer to the above data. If a lump-sum tax (the same tax amount at each level of
GDP) of $40 is imposed in this economy, the marginal propensity to consume is
________ both before and after taxes.
12. Refer to the above data. If a lump-sum tax (the same tax amount at each level of
GDP) of $40 is imposed in this economy, we can conclude that the tax neither
____________________ nor __________________________ built-in stability.
13. If the economy has a full-employment budget surplus, this means that tax
revenues would _________________________ government expenditures if full
employment were achieved.
14. An effective expansionary fiscal policy will __________________________ the
full-employment deficit but ___________________________ the cyclical deficit.
15. Refer to the above diagram where T is tax revenues and G is government
expenditures. All figures are in billions of dollars. If the full-employment GDP is
$400 billion while the actual GDP is $200 billion, the actual budget deficit is
_________________________________.
16. Refer to the above diagram where T is tax revenues and G is government
expenditures. All figures are in billions of dollars. If the full-employment GDP is
$400 billion while the actual GDP is $200 billion, the full-employment budget
deficit is _______________________________.
17. Refer to the previous diagram where T is tax revenues and G is government
expenditures. All figures are in billions of dollars. If the full-employment GDP is
$400 billion while the actual GDP is $200 billion, the cyclical deficit is
___________________________________.
18. Refer to the previous diagram where T is tax revenues and G is government
expenditures. All figures are in billions of dollars. If the full-employment GDP is
$400 billion while the actual GDP is $200 billion, the ______________________
budget deficit exceeds the _________________________________ budget deficit.
19. Refer to the previous diagram where T is tax revenues and G is government
expenditures. All figures are in billions of dollars. If the full-employment GDP
and actual GDP are each $400 billion, this economy will realize a fullemployment deficit of __________________________.
20. Refer to the previous diagram where T is tax revenues and G is government
expenditures. All figures are in billions of dollars. If the full-employment and
actual GDP are each $400 billion, government can balance its budget by reducing
G by _____________________________.
21. Economists refer to a budget deficit that exists when the economy is achieving
full employment as a _______________________________________________.
22. Refer to the above diagram. If the full-employment level of GDP is D, then it
would be appropriate fiscal policy for government to _______________________
spending and ________________________________ taxes.
23. Refer to the above diagram. If the full-employment level of GDP is A, then it
would be appropriate fiscal policy for government to _______________________
spending and ________________________________ taxes.
24. If the economy is encountering inflation, supply-side economists might
recommend _____________________________________ to increase the size of
the full-employment GDP.
25. Supply-side economists argue that a major effect of tax cuts is to shift the
_____________________________________ curve to the __________________.
26. Supply-side economists argue that tax cuts will accomplish what three effects.
A. ____________________________________________________________.
B. ____________________________________________________________.
C. ____________________________________________________________.
27. Refer to the above diagram. The equilibrium level of GDP is ______________.
28. Refer to the above diagram. If the full-employment GDP is Y5, government
should _________________________ taxes and __________________________
government spending.
29. The composite index of leading indicators is useful for developing
_________________________________________________________________.
30. One of the leading economic indicators is the
__________________________________________________________________.