Chapter 13 Fiscal Policy
Multiplier on changes in gov't purchases =
1/(1-MPC)
__________ fiscal policy arises from deliberate actions by policy makers rather than from the business cycle
Discretionary
GDP = ___ + ___ + ___ + ___ - ____
GDP = C + I + G + X - IM
What is the biggest source of tax revenue in the U.S?
Personal income taxes
Debt
Sum of money gov't owes at a particular point in time
S(gov) = ___ - __ - __
T - G - TR
Expansionary Fiscal policy is most useful in ........, this in turn, ________ aggregate demand
closing a recessionary gap; increases
Widely used measure of fiscal health is ................
debt-gdp ratio
Contractionary fiscal policy leads to a _______ in real GDP, larger than the initial reduction in ________ _________ caused by policy
decrease; aggregate spending
Cyclically adjusted budget balance separates effects of business cycle from _________ policy
discretionary
Contractionary fiscal policy is used to ......; contractionary policy ________ aggregate demand
eliminating an inflationary gap; decreases
There are significant lags in the case of _________ ________
fiscal policy
Expansionary fiscal policy makes a budget surplus _______ or a deficit _______
smaller; bigger
Contractionary fiscal policy means ______ gov't purchases of g&s, _______ gov't transfers or _____ taxes-- which increase budget balance, making surplus bigger or deficit smaller
smaller; decrease; increase
Budget deficit as a percentage of GDP moves closely in tandem w/ .............
unemployment rate
Fiscal policy
use of taxes, gov't transfers, or gov't purchases of goods and services to shift aggregate demand curve
Changes in gov't purchases have a (more/less) powerful effect on economy then equal size changes in taxes or transfers
MORE
Multiplier for changes in taxes or transfers
MPC/(1-MPC)
Debts and deficits are linked because gov't debt grows when gov't runs ........
deficits
Deficit
difference between amount of money a gov't spends and amount it receives in taxes over a given period
A ______ ________ is considered to be October 1 to September 30
fiscal year
U.S. gov't budget accounting is calculated on the basis of .......
fiscal years
Rules governing taxes and some transfers act as an automatic stabilizer, reducing the size of multiplier and reducing size of .......
fluctuations in the business cycle
Social insurance programs
gov't programs intended to protect families against economic hardship
Expansionary fiscal policy leads to an __________ in real GDP, larger than initial rise in ________ ________ caused by the policy
increase; aggregate spending
Public debt may crowd out________ ________, which reduces long run economic growth
investment spending
Fiscal policy has a __________ effect on the economy
multiplier
Persistent deficits lead to an increase in _______ _______ in the long run
public debt
Budget Deficit as a percentage of GDP tends to ____ during recessions and ____ during expansions
rise; fall