Econ. Chp 20 – Flashcards
Unlock all answers in this set
Unlock answersquestion
fiscal policy
answer
involves adjusting government spending (on goods and services), transfer payments, and taxes with the express purpose of managing the macro economy.
question
discretionary spending
answer
The part of the budget that works its way through the appropriations process of Congress each year and includes such programs as defense, veterans benefits, education, environmental, transportation and science.
question
mandatory spending
answer
Spending authorized by permanent laws that does not go through the same appropriations process as discretionary spending. Mandatory spending includes such programs as social security, Medicare, and interest on the national debt.
question
discretionary fiscal policy
answer
Involves adjusting government spending and tax policies with the express short-run goal of moving the economy toward full employment, expanding economic growth, or controlling inflation.
question
change in government spending
answer
will cause income and output to rise or fall by the spending change times the multiplier.
question
changes in taxes
answer
has less of a direct impact on income, employment, and output than an equivalent change in government spending.
question
transfer payments
answer
are money payments directly paid to individuals. They include social security, unemployment compensation and welfare.
question
expansionary fiscal policy
answer
involves increasing government spending, increasing transfer payments or decreasing aggregate demand to expand output and the economy.
question
contractory fiscal policy
answer
involves increasing withdrawals from the economy by reducing government spending, transfer payments or raising taxes to decrease aggregate demand to contract output and the economy.
question
fiscal policy & aggregate supply
answer
Policies that focus on shifting the long-run aggregate supply curve to the right, expanding the economy with output increasing inflationary pressures. Unlike policies to increase aggregate demand, supply side policies take longer to have an impact on the economy.
question
laffer curve
answer
plots hypothetical tax revenues at various tax rates
question
implementing fiscal policy
answer
is complex and time consuming process. Three disparate groups - the Senate, the House, and the executive branch - must collectively agree on specific spending and tax policies.
question
automatic stabilizers
answer
Tax revenues and transfer payments automatically expand or contract in ways that reduce the intensity of business fluctuations without any overt action by Congress or other policy makers.
question
fiscal policy timing lags
answer
Using fiscal policy to smooth the short-term business cycle is a challenge because of several lags associated with the implementation.
question
information lag
answer
the time policy makers wait for economic data to be collected, processed and reported.
question
recognition lag
answer
the time it takes for policymakers to confirm that the economy is tending in or out of a recession.
question
decision lag
answer
the time it takes Congress and the administration to decide on a policy once a problem is recognized.
question
implementation lag
answer
the time required to turn fiscal policy into law and eventually have an impact on the economy.
