Econ- exam 3 / final review - fiscal policy
The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the
legislative lag
When crowding out occurs in an economy, it can reduce expenditures for
both consumer purchases and business investments.
An increase in personal income tax rates would tend to reduce
consumption
Fiscal policy is sometimes initiated on the advice of the
council of economic advisers
Due to automatic stabilizers, when the nation's total income rises, government transfer paymen
decrease and tax revenues increase
Which of the following would not be considered an automatic stabilizer?
defense spending
When the federal government cuts taxes and increases purchases to stimulate the economy during a period of recession, such actions are designed to be
expansionary
When the federal government uses taxation and purchasing actions to stimulate the economy it is conducting
fiscal policy
Which of the following is an example of built-in stability? As real GDP decreases,
income tax revenues decrease and transfer payments increase
One of the potential downsides of expansionary fiscal policy is that it often increases
national debt
The short-term fluctuations experienced in the economy due to changes in levels of economic activity are called
the business cycle
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 multiplier effect
Which of the following serves as an automatic stabilizer in the economy?
the progressive income tax
Using fiscal policy to stabilize the economy is difficult because
there are time lags involved in the use of fiscal policy
One timing problem in using fiscal policy to counter a recession is the "implementation lag" that occurs between the
time fiscal action is taken and the time that the action has its effect on the economy.
One timing problem in using fiscal policy to counter a recession is the "legislative lag" that occurs between the
time the need for the fiscal action is recognized and the time that the action is taken
A recession is defined as at least ______ consecutive quarters of decline in real GDP.
two