1. ____________ is the use of government spending and/or taxes to alter real GDP and price levels.
2. When government spending (for purchases of goods and services and transfer payments) exceeds tax revenues, the result is a budget ____________.
3. When the government wishes to stimulate the economy by increasing aggregate demand, it will ____________ government purchases of goods and services, ____________ taxes, or use some combination of these approaches.
4. Expansionary fiscal policy is associated with ____________ government budget deficits.
5. If the government wishes to dampen a boom in the economy, it will ____________ its purchases of goods and services, ____________ taxes, or use some combination of these approaches.
6. By changing tax rates, the government can alter the amount of ____________ income of households and thereby bring about changes in ____________ purchases.
7. Increased budget ____________ will stimulate the economy when it is operating at less than full capacity.
8. The result of an expansionary fiscal policy in the short run would be a(n) ____________ in the price level and a(n) ____________ in RGDP.
. If the government wants to use fiscal policy to help “cool off” the economy when it has overheated and inflation has become a serious problem, it will tend to ____________ government purchases and/or ____________ taxes.
10. A tax ____________ on consumers will reduce households’ disposable incomes and thus their purchases of ____________ goods and services, while higher business taxes will reduce ____________ purchases.
11. Contractionary fiscal policy will result in a(n) ____________ price level and ____________ employment in the short run.
12. The ____________ effect explains why, when an initial increase in purchases of goods or services occurs, the ultimate increase in total purchases will tend to be greater than the initial increase.
13. When the government purchases additional goods and services, not only does it add to the total demand for goods and services directly, but the purchases also add to people’s ____________.
14. When people’s incomes rise because of increased government purchases of goods and services, collectively people will spend a substantial part of the additional income on additional ____________ purchases.
15. The additional consumption purchases made as a portion of one’s additional income is measured by the ____________.
16. With each additional round of the multiplier process, the added income generated and the resulting consumer purchases get ____________ because some of each round’s increase in income goes to ____________ and ____________ payments.
17. ____________ is equal to 1/(1 _ MPC).
18. The larger the marginal propensity to consume, the ____________ the multiplier effect.
19. If the marginal propensity to consume were smaller, a given increase in government purchases would have a(n) ____________ effect on consumption purchases.
20. The extent of the multiplier effect visible within a short time period will be ____________ than the total effect indicated by the multiplier formula.
21. The multiplier effect triggered by an increase in spending arises because of the additional ____________ spending that it leads to.
22. If your MPC were equal to 0.7, your MPS would equal ____________ .
23. Savings and money spent on imported goods will each ____________ the size of the multiplier.
24. The multiplier effect of an increase in government purchases implies that the increase in aggregate demand will tend to be ____________ than the initial fiscal stimulus, other things being equal.
25. Supply-side economists believe that individuals will save ____________, work ____________, and provide ____________ capital when taxes, government transfer payments (such as welfare), and regulations are too burdensome on productive activities.
26. The ____________ curve shows that high tax rates could conceivably reduce work incentives to the point that government revenues are lower at high marginal tax rates than they would be at somewhat lower rates.
27. If the demand-side stimulus from reduced tax rates is ____________ than the supply-side effects, the result will be a higher price level and a greater level of real output.
28. Changes in government transfer payments or tax collections that automatically tend to counter business cycle fluctuations are called ____________.
29. The most important automatic stabilizer is the ____________ system.
30. Big increases and big decreases in GDP are both ____________ by automatic changes in income tax receipts.
31. Because incomes, earnings, and profits all fall during a recession, the government collects ____________ in taxes. This reduced tax burden partially ____________ any contractionary fall in aggregate demand.
32. When the government borrows money to finance a deficit, it ____________ the overall demand for money in the money market, driving interest rates ____________.
33. The ____________ effect refers to the theory that when the government borrows money to finance a deficit, it drives interest rates up, choking off some private spending on goods and services.
34. The monetary authorities could ____________ the money supply to offset the ____________ interest rates due to the crowding-out effect of expansionary fiscal policy.
35. Expansionary fiscal policy will tend to ____________ the demand for dollars relative to other currencies.
36. Expansionary fiscal policy will tend to cause net exports to ____________.
37. The larger the crowding-out effect, the ____________ the actual effect of a given change in fiscal policy.
38. Because of the ____________ in implementing fiscal policy, a fiscal policy designed to deal with a contracting economy may actually take effect during a period of economic expansion.
39. Timed correctly, contractionary fiscal policy could correct a(n) ____________; timed incorrectly, it could cause a(n) ____________.
40. If the federal government is running a(n) ____________, the federal debt would be getting smaller.
41. Historically, the largest budget deficits have tended to be in ____________ years.
42. Deficit reduction is a(n) ____________ fiscal policy in the short run.
43. ____________ a federal budget deficit could be an appropriate fiscal policy if the economy were in a recession.
44. If unemployed resources are put to work by government spending, the opportunity cost of expanded public activity would be ____________ than otherwise.
45. Starting at a full-employment equilibrium, the only long-term effect of an increase in aggregate demand will be an increase in the ____________ level.
46. Starting at a full-employment equilibrium, once the economy has returned to its long-run equilibrium after an increase in government purchases, employment will be ____________ full employment.