Chapter 16 Sweeney – Flashcards
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What is a Fiscal Policy
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changes in government spending and taxes to achieve macroeconomic policy objectives
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Who is responsible for fiscal policy
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The federal government controls fiscal policy
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If Congress enacts a legislation that pays people buying new cars if they trade in an older, low gas-mileage car is this a fiscal policy
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Yes, because the primary goal of spending program was to stimulate the national economy
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If the federal government increases spending on rebuilding the Jersey Shore following a hurricane is an an example of
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A discretionary fiscal policy
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The Federal Reserve sells Treasury securities
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not a fiscal policy
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The total the federal government pays out for unemployment insurance decreases during an expansion
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an automatic stabilizer
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The revenue the federal government collects from the individual income tax declines during a recession
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an automatic stabalizer
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The federal government changes the required gasoline mileage for new cars
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not a fiscal policy
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Congress and the prez enact a temporary cut in payroll taxes
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discretionary fiscal policy
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When the economy is experiencing an expansion automatic stabilizers will cause
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transfer payments to decrease and tax revenues to increase
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Some spending and taxes increase or decrease with the business cycle, this fiscal policy is called
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automatic stabilizers
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What is an expansionary fiscal policy
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increasing government spending and decreasing taxes to increase aggregate demand
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What is a contractionary fiscal policy
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decreasing government spending and increasing taxes to decrease aggregate demand
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When the corporate income tax rate is increased it is
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part of a contractionary fiscal policy
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Defense spending is increased is
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not part of fiscal policy
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The Federal Reserve lowers the target for the federal funds rate is
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not part of fiscal policy
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Families are allowed to deduct all their expenses for daycare from their federal income taxes is
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not part of fiscal policy
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The individual income tax rate being decreased is
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part of an expansionary fiscal policy
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If aggregate demand decreases what actions can Congress and the prez take to make the economy back to potential GDP
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Increase government spending or decrease taxes
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During an expansionary fiscal policy real GDP and price level
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will rise
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During a contractionary fiscal policy real GDP and price level
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will fall
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If the government increases spending or decreases taxes what happens to aggregate demand
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it will shift to the right
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If the government decreases spending or increases taxes what happens to aggregate demand
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it will shift to the left
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An attempt to reduce inflation requires
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a contractionary fiscal policy
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An attempt to end the rescession requires
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an expansionary fiscal policy
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If Congress and the prez implement an expansionary fiscal policy
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real GDP will be higher
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If Congress and the prez implement an expansionary fiscal policy
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potential real GDP will remain the same
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If Congress and the prez implement an expansionary fiscal policy
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the inflation rate will be higher
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If Congress and the prez implement an expansionary fiscal policy
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the unemployment rate will be lower
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The Government purchases multiplier is
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the change in real GDP equilibrium/ the change in government purchases
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The Tax multiplier is
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the change in real GDP equilibrium/ the change in taxes
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Which can be changed more quickly: monetary policy or fiscal policy?
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Monetary policy because it can be changed at any of the FOMC meetings and the small number of individuals involved makes it easier to change policy
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What is crowding out
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the decline in private expenditures as a result of increases in government purchases
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What is the best description of the difference between crowding out in the short run versus in the long run
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In the short run, an increase in government purchases may not fully crowd out private expenditures due to the stimulative effect of an increase in government purchases on aggregate demand. In the long run, most economists believe that a permanent increase in government purchases will result in crowding out of private expenditures.
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If the government increases expenditure without raising taxes, this will
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increase the budget deficit and require the government to borrow additional funds and cause the interest rate to increase, reducing private investment and crowding out the private sector
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In the long run, increases in government purchases results in
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complete crowding out
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What is meant by supply-side economists
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refers to the use of taxes to increase incentives to work, save, invest, and start a business in order to increase long-run aggregate supply
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If there is a change in real GDP of $200 billion and the government purchases multiplier is 3.3, how much would government spending have to increase
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$61 billion
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If there is a change in real GDP of $200 billion and the taxes multiplier is 2.3, how much taxes would need to be cut
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$87 billion
