Homework 13: automatic stabilizers
Who controls fiscal policy?
Congress
discount rate
The interest rate on the loans that the Fed makes to banks
Multiplier effect
The series of induced increases in consumption spending that results from an initial increase in autonomous expenditures.
example of an expansionary fiscal policy
a decrease in taxes
The government purchases multiplier
change in equilibrium real GDP / Change in government purchases
tax multiplier
change in equilibrium real GDP/change in taxes
automatic stabilizers
government spending and taxes that automatically increase or decrease along with the business cycle
contractionary fiscal policy
includes decreasing government spending and increasing taxes to decrease aggregate demand
Government taxes
negative
government Expenditures in the equation
positive
what is strength of automatic stabilizers
short recognition lag
monetary policy cannot effect what?
tax policy
who's in charge of printing money?
the department of printing money
what is business confidence?
the optimism or pessimism a business manager feels about his prospects. provides an overview of how the economy is doing.
the goal of expansionary fiscal policy is
to increase aggregate demand
when is it appropriate to use the expansionary policy
when the economy is in a standard (demand-side) recession.
when is the appropriate time to use the contractionary policy
when the economy is overheated.
If Congress and the president decide an expansionary fiscal policy is necessary, what changes should they make in government spending or taxes?
In this case, Congress and the president should enact policies that increase government spending and decrease taxes.
two examples of automatic stabilizers
Progressive income tax and unemployment compensation
expansionary fiscal policy
expansionary fiscal policy includes increasing government spending and decreasing taxes to increase aggregate demand
how do you find the change in equilibrium GDP
expenditure/ 1-MPC