chapter 16 (homework)

A cut in the income tax rate? ________ the tax wedge and? ________ employment,? saving, and investment. ?Decreases; increases. If we compare the United States to? France, the U.S. tax wedge is? ________ the French tax wedge. Smaller than. The crowding out effect refers to the? ________ from? ________ in the? government's budget deficit decrease in? investment; an increase. The standard view in economics is that tax cuts without? ________ will? ________ the budget deficit resulting in? ________. spending? cuts; increase; crowding out investment If a tax cut increases aggregate demand more than aggregate? supply, real GDP? ________ and the price level? ________. increases; rises How could an expansionary fiscal policy increase real GDP and lower the price? level? if aggregate supply increases more than aggregate demand increases The quantity of employment is determined in the? ________ market and that? quantity, along with the? ________, determines potential GDP labor? market; production function Increasing the income tax rate? ________ the? ________. ?decreases; supply of labor If the income tax rate is 20 percent and the tax rate on consumption expenditure is 15? percent, then the tax wedge is 35 percent. The supplyminus?side effects of an income tax cut? ________ potential GDP and? ________ aggregate supply. ?increase; increase Assume the federal government raises taxes? (a contractionary fiscal? policy). If the tax increase affects AS and AD? equally, then real GDP will? ________ and the price level will? ________. ?decrease; be unchanged When an economy faces an inflationary? gap, an appropriate fiscal policy is to decrease government expenditure. If an economy is in an equilibrium with an inflationary? gap, policy?makers can use Discretionary fiscal policy and decrease government expenditure A decrease in taxes should be applied in a situation with a recessionary gap. If the economy has been producing at a point where real GDP is less than potential? GDP, what fiscal policy can the federal government use to restore real GDP to potential? GDP? cut taxes In order to reduce inflationary pressure on the? economy, what fiscal policy can the government? use? Raise in tax