Chapter 13

When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is

Discretionary fiscal policy

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting

Fiscal Policy

if the cyclically-adjusted budget shows a deficit zero and the actual budget shows a deficit of about $150 billion, it can be concluded that there is

a cyclical deficit

what would cause a shift to the left (see graph)

a decrease in taxes and an increase in government spending

what would cause a shift to the right

an increase in taxes and a decrease in government spending

assume that the economy is in a recession and there is a budget deficit. a strict balanced-budged rule that would require the federal government to balance its budget during a recession would be

contractionary and worsen the effects of the recession

if the U.S. congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of

contractionary fiscal policy

the cyclically-adjusted surplus in the U.S. went from +1.2% of GDP in 2000 to +0.6 of GDP in 2002. this suggests that the government during that period

cut taxes and increased spending

the Great Recession of 2007-09 and the consequent policy response made the

cyclically-adjusted deficit grow during that period

the intent of contractionary fiscal policy is to

decrease aggregate demand

due to automatic stabilizers, when the nation's total income rise, government transfer spending

decrease and tax revenues increase

which of the following is an example of built-in stability? as real GDP decreases, income tax revenues

decrease and transfer payments increase

the set of fiscal policies that would be most contractionary would be a

decrease in government spending and an increase in taxes

the American Recovery and Reinvestment act of 2009 is a clear example of

discretionary fiscal policy that made the cyclically-adjusted budget become more negative

in year 1, the actual budget deficit was $200 billion and the cyclically-adjusted deficit was $150 billion. In year 2, the actual budget deficit was $225 billion and the cyclically-adjusted deficit was $175 billion. It can be concluded that fiscal policy from year 1 to year 2 became more

expansionary

if congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of

expansionary fiscal policy

the cyclically-adjusted surplus as a percentage of GDP is 1% in year 1. This surplus becomes a deficit of 2% of GDP in year 2. it can be concluded that from year 1 to year 2 that

fiscal policy turned more expansionary

the cyclically-adjusted deficit as a percentage of GDP is 2% in year 1. This cyclically-adjusted deficit becomes 1% of GDP in year 2. It can be concluded from year 1 to year 2 that

fiscal policy was more contractionary

automatic stabilizers smooth fluctuations in the economy because they produce changes in the government

help offset changes in GDP

the American Recovery and Reinvestment act of 2009 included mostly

increase in government spending and decreases in taxes

if the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be

increased government spending or decreased taxation, or a combo

One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy

is not subject to the timing problems of discretionary policy

when changes in taxes and government spending occur in the economy without explicit action by congress, such policy is called

non discretionary fiscal policy

if you are told that the government had an actual budget deficit of $50 billion, then you would

not be able to determine the direction of fiscal policy from the information

as the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system

serves as an automatic stabilizer for the economy

one timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the

start of the recession and the time it takes to recognize that the recession has started

if the government wishes to increase the level of real GDp, it might reduce

taxes

the cyclically-adjusted budget estimates the Federal budget deficit or surplus if

the economy were at full employment

one timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the

time fiscal action is taken and the time that the action had its effects on the economy

one timing problem in using fiscal policy to counter a recession is the "administrative lag" that occurs between the

time the need for the fiscal action is recognized and the time that the action is taken