fiscal policy

With demand-pull inflation, active fiscal policy calls for ________ government purchases

decreasing

which of the following IS considered when determining fiscal policy?

- changes in government spending - changes in taxes - automatic stabilizers

Which of the following policies involves decreasing government purchases and/or increasing taxes?

A contractionary fiscal policy

The application of fiscal policy to decrease aggregate demand is called a(n) _________ fiscal policy

Blank 1: contractionary

The multiplier effect is/are the:

concept that an additional dollar of expenditures will result in the creation of more than one dollar's worth of real GDP.

which of the following is not a lag associated with fiscal policy

policy

Fiscal policy is:

the changes in government purchases and/or taxes designed to achieve full employment and low inflation.

The application of fiscal policy to increase aggregate demand is called ________ fiscal policy

expansionary

automatic stabalizers

when a shock to aggregate demand or aggregate supply occurs, tax revenue, government spending, and prices all start adjusting to help the economy move back to full employment - because of these automatic stabilizers, the highs and lows of the business cycle are smaller than they would otherwise be

Suppose that government officials have decided to implement expansionary fiscal policies. What are their desired outcomes?

- increase aggregate demand - expand real GDP - reduce unemployment

which of the following is a lag associated with fiscal policy

- recognition - legislative - implementation

which of the following DOES describe automatic stabalizers

- they decrease the impact of inflationary and recessionary pressures - they involve taxes - they involve transfer payments

Which of the following best describes fiscal policy?

Changes in government purchases and/or taxes designed to achieve full employment and low inflation

Which is a frequently used tool of fiscal policy?

Changes in government purchases.

This policy involves increasing government purchases and/or decreasing taxes.

Expansionary fiscal policy

Fiscal policy relies on three assumptions: - Recognizing the start of a recession. - Government quickly determines effective policy. - The policy is immediately effective. Which of these assumptions hold in the real world?

None of the assumptions hold in the real world.

Which of the following statements best describes a situation when fiscal policy is more appropriate?

To stimulate an economy that is in a severe recession or one that is slow to correct.

the tax multiplier is -3, the MPC is 0.75 and current real GDP is $400 billion less than the full employment level of real GDP. the appropriate action is

a tax cut of $133.33 billion

The short-term fluctuations experienced in an economy due to changes in the levels of economic activity refers to the ________ cycle

business

which of the following is not considered when determining fiscal policy?

changes in interest rates

In the short run, in order to stimulate aggregate ________ and avoid falling output and prices, the government could reduce taxes.

demand

Active fiscal policy calls for reducing government purchases in case of:

demand-pull inflation.

Changes in government purchases and/or taxes designed to achieve full employment and low inflation is called ________ policy

fiscal

government _________ policy has limitations that reduce its effectiveness and may even cause the opposite of what was intended.

fiscal

The level of real GDP at the natural rate of unemployment is called ________ - ________ real GDP

full employment

When comparing the two options for restoring the economy to its full-employment level of output, the benefit of allowing the economy to return to full employment on its own is that

full employment is reached with lower price level

The level of real GDP produced in an economy when it is operating at the natural rate of unemployment is called:

full-employment GDP.

One of the most frequently used tools of fiscal policy is changing:

government purchases. and/or taxes

c. The time it takes to design and build new infrastructure after these projects have been passed by the legislature.

implementation lag

in an economy with a MPC of 0.75, the government could shift the aggregate demand curve to the right by $160 billion if they

increase government spending by $40 billion

Because the U.S. Federal income tax is a progressive tax, as income ___________, average federal tax rates increase.

increases

A key feature of all automatic stabilizers is that they

involve existing legislation

The average U.S. Federal income tax rates increase as as income rises. Thus the U.S. Federal income tax:

is a progressive tax.

The separation of power demonstrated between the legislative and executive branches of government combined with strong partisanship attitude among our elected politicians.

legislative lag

The concept that an additional dollar of expenditures will result in the creation of more than one dollar's worth of real GDP is called the ________ effect

multiplier

The concept that an additional dollar of expenditures will result in the creation of more than one dollar's worth of real GDP is called the _________ effect

multiplier

b. The fact that it takes economists working for the National Bureau of Economic Research months to declare the dates of peaks and troughs.

recognition lag

Which of the following policy is consistent with expansionary fiscal policy?

reduce personal income tax rates

The business cycle is:

the short-term fluctuations experienced in the economy due to changes in levels of economic activity.

which of the following does not describe automatic stabilizers?

they involve congress passing legislation

When income falls, average tax rates fall, which stimulates aggregate demand and reduces

unemployment