Macroeconomics Chapter 27

If the government cuts taxes in order to increase aggregate demand, the action is called

A discretionary fiscal policy

Changes in taxes and spending that happen without actions by the government are called

Automatic stabilizers

Government spending and taxes that increase or decrease without any actions taken by the government are referred to as

Automatic stabilizers

Some spending and taxes increase or decrease with the business cycle. This event often has an effect on the economy that is similar to fiscal policy and is called

Automatic stabilizers

What is fiscal policy?

Can be described as changes in government spending and taxes to acgirve macroeconomic policy objectives

Which of the following statements is most accurate regarding fiscal policy and monetary policy?

Fiscal policy includes changed in government spending snd taxes and is controlled by the federal government. Monetary policy includes changed in the money supply and interest rates and is controlled by the Federal Reserve. Both policies are intended to achieve macroeconomic objectives.

The term "crowding out" refers to a situation where:

Government spending increases interest rates and decreases private investment

Which of the following statements about the federal debt is correct?

If debt becomes very large relative to the economy, then the government may have to raise to high levels or reduce other types of spending to make the interest payments on the debt.

Over time, potential GDP _____, which is shown by the ______ curve shifting to the right.

Increases; long-run aggregate supply

If congress and the president decide an expansionary fiscal policy is necessary, what changes should they make in government spending or taxes?

Policies that increase govt spending and decrease taxes

What is meant by supply-side economics?

Refers to the use of taxes to increase incentives to work, save, invest, and start a business in order to increase long-run aggregate supply

Who is responsible for fiscal policy?

The federal government

The national debt is best measured as

The total value of U.S. Treasury securities outstanding

Why does a$1 increase in government purchases lead to more than a $1 increase in income and spending?

Through the government purchases multiplier, the $1 increase in government spending will lead to an increase in aggregate demand and national income, which will lead to an increase in induced spending.

When the economy is experiencing an expansion automatic stabilizers will cause:

Transfer payments to decrease and tax revenues to increase

When is it considered "good policy" for the government to run a budget deficit?

When borrowing is used for long-lived capital goods

Is it possible for congress and the president to carry out an expansionary fiscal policy if the money supply does not increase?

Yes, because fiscal policy and monetary policy are separate things

What is a contractionary fiscal policy?

decreasing government spending and increasing taxes to decrease aggregate demand

What is an expansionary fiscal policy?

increasing government spending and decreasing taxes to increase aggregate demand

As the tax rate increases,

the multiplier effect decreases.