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