Chapter 11 Fiscal Policy and the federal budget

Unemployment compensation benefits (in total) rise as a result of an increase in the unemployment rate.

Discretionary fiscal policy

How can expansionary fiscal policy end up destabilizing the economy? Check all that apply.

-It can shift the AD curve to the right at the same time that (unbeknownst to policy makers) the SRAS curve is shifting to the right, so the new SRAS and AD curves intersect at a point greater than Natural Real GDP. -It can shift the AD curve too far to the right, so the new SRAS and AD curves intersect at a point greater than Natural Real GDP.

Unemployment compensation benefits (in total) rise as a result of an increase in the unemployment rate.

Automatic Fiscal Policy

True or False: Tax revenue will never rise if tax rates are lowered.

False

Which of the following describe how crowding out may occur? Check all that apply.

Individuals substitute government goods for private goods. Financing the deficit pushes interest rates upward, causing investment to fall.

Some economists argue for the use of fiscal policy to solve economic problems; some argue against it. Identify whether each argument in the following table is for the use of fiscal policy or against it.

The economy is not always self-regulating. - For Fiscal policy is characterized by long lags.- Against The economy is self-regulating. - Against The crowding out effects of fiscal policy are large. - Against