# Econ Self-Test

 Selling Cars and buying new ones. Is this an example of fiscal policy? Yes bc the goal of the spending program was to stimulate the national economy Which govt revenue is to increase the most in the future? individual income taxes Who are the baby boomers? Ppl born from after WWII to 1965 Why should the retirement of the baby boomers cause a large increase in the growth rate of spending by the federal govt on SS? More ppl will be collecting SS than now The dynamic model assumes potential GDP is constantly growing while the basic model assumes it is static True In the dynamic model, expansionary policy would be used when the demands does not grow and in the basic it is used when the demand falls True If the economy is below full employment, expansionary fiscal policy will cause an increase in the price level in both models True Keeping real GDP at its potential using expansionary fiscal policy, what is Real GDP, Potential GDP, inflation rate and unemployment rate? higher/the same/higher/lower Government purchases multiplier change in equilibrium real GDP/change in govt purchases Tax Multiplier change in equilibrium real GDP/change in taxes The multiplier effect The initial increase in spending will result in rounds of "respending" resulting in a greater effect on real GDP than the initial increase in spending The govt purchase multiplier can have a value greater than 0 and less than 1 if the marginal propensity to consume is negative Why does the estimate of the size of the multiplier matter in evaluating the effects of an expansionary fiscal policy The larger the multiplier, the greater the effects of an expansionary fiscal policy Change in govt spending change in GDP=multiplier * change in govt spending Why would a tax multiplier have a larger value after 2 years than after one? Consumers are more likely to perceive the tax change as permanent and change their spending choices If the SRAS were a horizontal line, what would the impact on the size of the govt purchases and tax multipliers? The impact of the multiplier would be larger if the SRAS curve is horizontal Crowding Out A decline in private expenditures as a result of increases in govt purchases Diff bet crowding out in the short run and long run In the short run, an increase in govt purchases may not cause crowding out, but they will in the long run Describe how the govt "thirsts" for funds The govt borrowing increases the demand for funds, causing the interest rate to rise Why would crowding out reduce economic growth? Increases in interest rates reduce investment, which is likely to reduce economic growth Temporary income and permanent income and health Temporary decrease income ppl have time to lose weight, but permanent income increase ppl have better health What is the cyclically adjusted budget deficit or surplus? the deficit or surplus in the fed govt's budget if the economy were at potential GDP In a recession, what happens to tax revenues and govt expenditures? decrease/increase What is the difference bet the federal budget and federal govt debt? The federal budget is the year-to-year short fall in tax revenues (T