chapter 7&8
2. A sustained increase in the general price level is called a. deflation. b. inflation. c. disinflation. d. hyperinflation.
B. A sustained decrease in the average price level is called deflation. Disinflation is a reduction in the rate of inflation. Hyperinflation is a very high rate of inflation.
24. Who can cause deep rooted long lasting inflation? a. Businesses. b. Consumers. c. The federal government. d. The Federal Reserve.
D. Only the Fed can increase the money supply more than we increase goods and services.
7. Let's say inflation remains stable and huge government budget deficits drive up market interest rates. This will cause a. foreign investment in the U.S. to increase. b. imports to decrease. c. the foreign trade deficit to decrease. d. the value of the dollar to depreciate relative to foreign currencies.
A. As interest rates in America increase relative to interests rates in foreign countries, everything else remaining the same, will give foreigners an incentive to put their money in America to take advantage of the favorable interest rates.
20. Which categories are not included in the core inflation rate published by the Bureau of Labor Statistics? a. Food and energy. b. Luxury goods and automobiles. c. Computers and televisions.
A. By excluding food and energy, the two categories which increase in price the most, the government can pay out less to Social Security recipients whose payments increase along with the core inflation rate.
21. Which categories are not included in the core inflation rate published by the Bureau of Labor Statistics? a. Food and energy. b. Luxury goods and automobiles. c. Computers and televisions.
A. By excluding food and energy, the two categories which increase in price the most, the government can pay out less to Social Security recipients whose payments increase along with the core inflation rate.
23. What is the best remedy for solving the problems of cost push type of inflation? a. Decrease demand. b. Lower costs in order to shift the aggregate supply curve to the left. c. Impose a wage price freeze.
A. By giving businesses an incentive to lower their costs the aggregate supply curve can shift to the left thus driving price down and quantity up.
25. Which is the best way to have a healthy growing economy with a low rate of inflation over a long period of time? a. Increase productivity. b. Monetize the federal debt. c. A greater centralization of power in the hands of the federal government.
A. By increasing productivity we can have lower prices, an increase in buying power, and more employment.
16. All of the following are components of the aggregate expenditure function which may be examples of fiscal policy except a. government expenditure for social security. b. consumption expenditure for appliances. c. investment expenditures for capital equipment. d. government expenditures for highway construction.
A. Government spending on Social Security is simply a transfer payment; money is taken from one group and given to another group.
3. John M. Keynes is best known for advocating a. a policy of annually balancing the budget. b. deficit spending during some recessions. c. the fixed-growth-rate monetary rule.
B. Before the Great Depression of the 1930's Classical economics was the accepted believe. According the Classical thinking, the economy was always tending toward a full employment equilibrium, therefore there was no need for government intervention. Keynes believed that the economy could tend toward a less then full employment equilibrium, therefore, in this case, there was need for government intervention to move the economy to a full employment equilibrium.
18. According to Keynesian economics, when is fiscal policy effective in eliminating a less than full employment equilibrium? When it a. increases potential GDP. b. increases the equilibrium level of real GDP. c. increases the rate of unemployment. d. decreases the level of prices.
B. Fiscal policies differ from monetary polices in that they can shift the equilibrium. With unemployment present the economy may be tending toward a point of less than full employment. By shifting aggregate demand upward, the intent is to move the equilibrium to a full employment equilibrium.
9. A reduction in the rate on inflation is known as a. deflation. b. disinflation. c. inflation. d. hyperinflation.
B. If inflation in year one is 6% and 5% in year two, we experience disinflation. We still have inflation in year two, but the inflation rate is lower than in the previous year.
39. Large federal budget deficits a. can best be reduced by discretionary fiscal policy. b. make it difficult to use discretionary fiscal policy. c. in the mid to late 1980's were the result of a severe recession. d. still constitute only about 1% of the GDP.
B. Large deficits make it difficult for discretionary fiscal policy because the lower taxes and/or increases in government spending can add to the national debt.
22. John M. Keynes influenced the use of fiscal policy in the U.S. by arguing effectively that a. that balancing the national budget at all times was sound economic policy. b. national economic forces were not necessarily adequate to move the economy towards its potential output level. c. the government did not need to stimulate output in order for the economy to achieve its potential output level.
B. The biggest difference between Keynes and the Austrians was that Keynes believed that the economy could tend toward a point of less than full employment. Austrians believe that if we allowed market forces to operate we would tend toward a point of full employment.
12. When the MPC is .75, a decrease in net taxes of $100 billion will increase the equilibrium level of real GDP by a. $75 billion. b. $100 billion. c. $300 billion.
C. -MPC/(1-MPC) = -.75/.25 = -3; -3 x -$100 billion = $300 billion.
5. When automatic stabilizers kick in to partially counteract recessionary forces a. aggregate demand rises above its pre-recession level. b. the deficit falls below its pre-recession level. c. the government tends to have more of a deficit, which is intended to stimulate the economy.
C. An example of an automatic stabilizer is unemployment benefits. During recessions the economy experiences insufficient aggregate demand, the unemployment benefits help to increase aggregate demand.
29. Which one of the following is not one of the concerns most often expressed about the effectiveness of fiscal policy? a. The difficulty of estimating the natural rate of unemployment. b. The time lags involved in implementing fiscal policy. c. An increase in aggregate demand tends to worsen unemployment.
C. An increase in aggregate demand will cause an increase in employment.
24. Which of the following is the best example of an automatic stabilizer in fiscal policy? a. Spending more on national highways. b. Paying pensions to retired military personnel. c. Paying unemployment insurance benefits. d. Decreasing the supply of money.
C. Automatic stabilizers go into effect during periods of unemployment and cease when the economy recovers. Only the payment of unemployment benefits in the above choices fits this description.
16. The misery index consists of the a. inflation rate minus the unemployment rate. b. unemployment rate minus the inflation rate. c. unemployment rate plus the inflation rate. d. unemployment rate minus the growth rate.
C. Because people are adversely affected by inflation and unemployment, to be affected by both results in real misery.
31. Which of the following does not hamper the effectiveness of discretionary fiscal policy? a. The difficulty of estimating the natural rate of unemployment. b. Time lags involved in enacting appropriate legislation. c. The difficulty of getting an accurate measure of the rate of inflation. d. Time lags involved in recognizing the need for fiscal policy.
C. Discretionary fiscal policies would be used more for unemployment and not inflation. Even if they were used for inflation, we have no difficulty in measuring the inflation rate.
8. Which of the following steps does not belong in a sequence reflecting the impact on international markets of increased borrowing? a. The U.S. Treasury sells securities. b. The sale of securities drives up interest rates. c. The rising value of the dollar leads to increased U.S. exports and reduced imports.
C. Higher interest rates in America will attract foreign investment. But to invest in America, foreigners need American dollars, thus the demand for dollars increases in the world market, increasing the dollar's value. Foreign products are now less expensive to Americans and American products more expensive to foreigners.
41. The depression of 1920-1921 was a. as severe as the depression of the 1930s. b. brief and swift. c. a case where the economy was allowed to correct the problem itself.
C. We did not come in and impose all kinds of government programs as we did in the 1930s. Some economists believe that it was government policies of the 30s which led to the length and severity of the depression.
20. According to Keynesian economics, when we have inflation an effective fiscal policy might include all ofthe following except a. increase personal taxes. b. increasing corporate taxes. c. increasing aggregate demand. d. decreasing government purchases.
C. With inflation the economy could be overheated. So we want to cool it down by lowering aggregate demand. Increasing personal taxes, increasing corporate taxes, and decreasing government purchases lowers aggregate demand.
10. All of the following are variables that can be manipulated to affect fiscal policy except a. personal income taxes. b. government expenditures on goods and services. c. government expenditures on unemployment benefits. d. the rate of interest.
D. A change in interest rates are influenced by the Federal Reserve. The Fed's ability to increase or decrease the nation's money supply gives it some influence as to what happens to interest rates.
21. When the aggregate supply (AS) curve has a positive slope, effective fiscal policy to correct an inflation problem will a. only reduce prices. b. only reduce real GDP. c. only increase prices. d. reduce both prices and real GDP.
D. Simply draw this out on a piece of paper. With an up-sloping curve and a down-sloping demand curve, a shift to the left of the demand curve will bring about a decrease in prices (vertical axis) and an decrease in real GDP (horizontal axis).
15. If future price changes were perfectly anticipated by both borrowers and lenders, what would happen to the real rate of interest in the future if the price level changed? Real interest rate would a. increase. b. decrease. c. decrease by the amount of the price increase. d. not change.
D. With future price changes exactly anticipated by both borrowers and lenders, interest rates would increase at the same level as prices, and therefore the real interest rate would not change.
5. Cost-push inflation typically follows which of the following patterns? a. Aggregate supply decreases that ultimately causes the price level to increase. b. aggregate demand and aggregate supply both decreases that ultimately causes the price level to increase
A. A factor that can cause a shift in supply is a change in costs. As costs increases the supplier cannot not afford to supply as much at every price level as used to be the case. A leftward shift of the aggregate supply curve will cause prices to increase. This is called cost-push inflation.
27. Which of the following is the best example of anti-recession discretionary fiscal policy? a. An increase in government expenditures on public construction projects like bridges, dams, and roads. b. A decrease in taxes on liquor and cigarettes. c. A decrease in welfare payments.
A. Discretionary fiscal policies differ from automatic stabilizers in that they are not automatic, but are up to the discretion of Congress. When the government increases spending, it is best to spend it on building our infrastructure, like roads and bridges.
. Fiscal policy a. uses the federal government's power of spending and taxation to affect employment, price levels, and GDP. b. uses the federal government's power over the money supply and interest rates to affect employment, the price level, and GDP. c. can affect employment and price, but not the level of GDP.
A. Fiscal policies are policies of the federal government to influence demand. During periods of inflation we would want demand to decrease, during periods of unemployment we would want demand to increase.
12. If the annual inflation rate is 5% per year, and the nominal interest rate is 6%, the real interest rate is a. 1% per year. b. 5% per year. c. 6% per year. d. 11% per year.
A. If you pay 6% to borrow money, but you repay the loan in dollars that have decreased in value by 5%, the true cost to you for the loan is only 1%.
22. In terms of monetary and fiscal policies which type of inflation is easiest to fight? a. Demand pull. b. Cost push. c. Stagflation.
A. In terms of monetary and fiscal policies we have more control over demand than we do costs.
6. The balanced budget multiplier a. is greater than 1. b. is less than 1. c. is equal to 1. d. can be more or less than 1.
A. It is greater than 1 because when the government increases taxes and increases spending by the same amount there is a positive stimulus effect because if citizens had the money they would save a portion of it, but when the government has the money it spends all of it.
32. People will be likely to spend a higher percentage of any additional income when a. they believe that the increase is permanent. b. they believe that the increase is temporary. c. the increase is large. d. the increase is small.
A. One of the failings of discretionary fiscal policies is that they can bring about changes that consumers will view as temporary and not permanent. It has been shown that people will base their spending habits more on what they consider their permanent income and less so on their perceived temporary income.
9. Which of the following would neutralize and offset the stimulating effect of deficit spending? a. Increased saving. b. Increased investment spending. c. Increased personal consumption expenditures. d. A decrease in taxes.
A. The more people can save, the less dependent they will be on the government when they retire.
11. A $100 billion dollar increase in government spending increases real GDP more than a $100 billion reduction in net taxes because a. some of the dollars consumers gain from the tax reduction will be saved. b. some of the dollars consumers gain from the tax reduction will be spent on services. c. consumers will spend some of it on foreign goods
A. The multiple effect is greater when the government has the $100 billion because it will spend all of it - if citizens have the money, they will save a portion of it - depending on the Marginal Propensity to Consume (MPS).
30. The rate of unemployment that occurs when the economy is producing its potential GDP is a. called the natural rate of unemployment. b. naturally zero. c. thought to be approximately 10%. d. equal to the rate of stagflation in most years.
A. The natural rate of unemployment equals full employment. If, let's say, five percent of the labor force would be looking for work even in the best of times, then five percent or less of unemployment would be considered full employment.
18. If the CPI is 220 one year and 210 the next, the annual rate of inflation is measured by the CPI is approximately a. -4.5%. b. -2.3%. c. 220%.
A. The rate of increase or decrease between two numbers is the difference between the two numbers divided by the original number. The difference between 220 and 210 is -10. Negative 10 divided by 220 is equal to a negative .045, which is -4.5%. The answer is a negative number because the CPI has decreased in this example and not increased.
37. The lower tax rates enacted in the early 1980's were intended to a. increase the supply of labor. b. increase the price level. c. increase unemployment benefits. d. reduce potential GDP.
A. This is what is called "supply side economics." By lowering taxes, people will more of an incentive to work and invest.
46. A big difference between states and the federal government is that states have to balance their budget each year whereas the federal government does not. a.True b.False
A. True. Because 48 states require an annually balanced budget, they have not experienced the debt problems the way the federal government has.
45. The Budget Enforcement Act of 1990 a. was a package of spending cuts and tax increases designed to reduce the deficit. b. was proposed by President Clinton. c. immediately succeeded in balancing the budget.
A. With concern about the deficit growing, Congress and President Bush agreed to the 1990 Budget Enforcement Act, a package of spending cuts and tax increases aimed at trimming the projected deficit. Afterward, Congress ignored its promise to cut spending and Bush lost the election largely because the tax increase he agreed to went against his "read my lips, no new taxes promise."
8. If the inflation rate is 14% per year, and your nominal income increases by 13% per year, your real income a. declines slightly. b. increases slightly. c. increases substantially. d. does not change.
A. With inflation increasing 1% more than your income increases, your buying power, or real income, goes down by 1%.
6. Demand-pull inflation typically follows which of the following patterns? Aggregate demand a. decreases that ultimately causes the price level to increase. b. increases that ultimately causes the price level to increase. c. and aggregate supply both increases that ultimately causes the price level to increase.
B. Because the downward sloping demand curve is moving to the right along an upward sloping supply curve, the increase in demand will pull the general price level upward.
44. Which of the following statements about the tax cut enacted in 1981 during the Reagan administration is correct? a. The tax cut caused the recession of 1982. b. The tax cut of 1981 and the recession of 1982 combined to produce one of the largest peace-time deficits up to that time. c. The tax cut stimulated a large increase in economic activity and led directly to the balanced budget of 1982
B. In the long run, a tax cut will increase economics growth and tax receipts. But, in the short run, the tax cut will lower government receipts. During recessions, government outlays grows while tax receipts diminish.
47. When the unemployment rate increases the federal deficit a. decreases. b. increases. c. is not affected.
B. Recessions bring about an increase in deficits for two reasons, first government receipts go down because unemployed people do not pay taxes, second, government spending increases as benefits increase.
48. The national (or federal) debt is a. the same thing as the federal deficit. b. the accumulation of all past deficits and surpluses. c. less than it was in 1946 if adjusted for inflation. d. held entirely by U.S. firms and households.
B. The deficit how much we borrow in a given year. The total of the deficits adds up to the national debt.
19. If the CPI is 109 one year and 112 the next, the annual rate of inflation is measured by the CPI is approximately a. 1.45%. b. 2.75%. c. 3.6%.
B. The difference between the two numbers divided by the original number is 3 / 109 = .0275 or 2.75%.
33. A temporary tax increase will fail to reduce consumption expenditures by the amount expected because a. people viewed the tax increase as permanent. b. people viewed the tax increase as temporary. c. people chose to increase their saving. d. consumption expenditures are unrelated to the level of taxation.
B. This is an example of a fiscal policy that was not effective because it was perceived as temporary and not permanent.
10. If the deflation rate is 10 percent per year, and your nominal wage rate increases by 11 percent per year, your real wage will a. increase slightly. b. increase substantially. c. not change. d. decrease slightly.
B. With a deflation rate of 10% (a fall in the average price level) and a raise in pay of 11%, your real income would rise by 21%.
35. Raising taxes as an element of discretionary fiscal policy is intended to reduce aggregate demand, but it can also reduce aggregate supply if a. the higher taxes lead workers to seek out a second job. b. the higher taxes cause workers to work less. c. the government purchases goods with the additional revenue.
B. With an increase in taxes tax-payers disposable income decreases. If they use their disposable income as a measure of if they should work or not, workers will work less.
38. The Reagan experiment in supply-side economics resulted in all of the following except a. growth in employment. b. a period of sustained economic growth. c. a reduction in the federal debt.
C. In the long run, a decrease in taxes will lead to an increase in real GDP do to the increase in economic growth. However, in the short run, this decrease in taxes will decrease government tax revenue and therefore add to the national debt, assuming no decrease in government spending. Government spending actually increasedunder Reagan because of big increases in military spending.
Inflation is defined as a(n) a. increase in some prices. b. increase in the price of a specific commodity (or service). c. sustained increase in the general price level. d. sustained increase in the price of a specific commodity (or service).
C. Not any increase in prices is considered inflation. Some prices always increase because of the workings of the price mechanism. Only when the general level of prices increase over time can we say that we have inflation.
13. Which of the following would best define interest? a. Dollar amount paid to lenders to forego consumption. b. Payment for abstinence. c. Dollar amount paid by borrowers to lenders to forego present consumption. d. Dollar amount paid by lenders to borrowers to forego present consumption.
C. People with money can either spend it or save it. In order to forego present consumption, these people need an incentive. The more interest they can earn on their savings, the more incentive there is to save.
23. Prior to the Great Depression of the 1930's, the dominant fiscal policy was a. to lower taxes whenever unemployment began to increase. b. to increase government purchases whenever the nation's output fell below its potential output level. c. to raise taxes or reduce government purchases whenever necessary to balance the federal budget.
C. The Austrian economists did not believe in fiscal policies to stimulate the economy during periods of recession. However, they did believe that it was fiscally sound for the federal government to have a balanced budget.
7. The Consumer Price Index measures the cost of a. all goods and services produced in the U.S. economy. b. all goods produced in the U.S. economy. c. a fixed market basket of consumer goods and services produced in the U.S. economy.
C. The Consumer Price Index does not measure the prices of all goods and services, but only a particular basket of goods and services. As times change and consumers buying habits change, what goes into this basket changes.
13. The effect of a change in net taxes on the quantity of real GDP demanded equals the resulting shift in the consumption function times a. the marginal propensity to consume. b. the marginal propensity to save. c. the autonomous net tax multiplier.
C. The autonomous net tax multiplier is the ratio of a change in equilibrium real GDP demanded to the initial change in autonomous net taxes that brought it about; the numerical value of the multiplier is -MPC/(1-MPC).
2. At any given price level (and with other things held constant) an increase in government purchase or transfer payments is most likely to decrease which of the following? a. The amount of real GDP demanded. b. The size of the federal debt. c. The amount of unemployment. d. The supply of money.
C. The purpose of an increase in government spending when used as a fiscal policy is to put unemployed people back to work.
17. According to Keynesian economics, when have an unemployment problem an effective fiscal policy might be to a. reduce market prices. b. reduce interest rates. c. increase the money supply. d. increase government purchases.
D. All of the above would help when we are in a less than full employment equilibrium; but only an increase in government purchases is a fiscal policy, the others are monetary policies.
26. All of the following are automatic stabilizers except a. unemployment insurance benefits. b. payments to welfare recipients. c. progressive federal income taxes. d. national defense expenditures.
D. An automatic stabilizer goes into effect automatically when the economy takes a dive and is taken off when the economy recovers. Such is not the case with national defense expenditures.
25. Automatic stabilizers a. have no effect on unemployment levels. b. have no effect on output levels. c. increase inflation. d. reduce the magnitude of economic fluctuations.
D. Automatic stabilizers do not totally reverse a decline in aggregate demand (for this to happen the payments would have to equal all of a person's loss of income), but they do slow down the downward trend.
14. Megan recently borrowed money to purchase an automobile at a nominal interest rate of 8% per year. If the inflation rate is 6% per year, what is the real rate of interest on the loan? a. 6% per year. b. 8% per year. c. 4% per year. d. 2% per year.
D. By paying back an 8% loan with dollars that have been deflated by 6%, the true cost of the loan is only 2%.
19. According to Keynesian economics, an appropriate fiscal policy to deal with inflation is to a. increase the rate of interest. b. increase farm subsidy payments. c. increase government purchases. d. increase personal taxes.
D. Choice a is a monetary policy. An increase in personal taxes would decrease taxpayers disposable income. With the resultant decrease in demand, prices would decline.
15. Which of the following is an example of fiscal policy? a. The Federal Reserve Board reduces interest rates. b. The local school board raises teachers' salaries. c. General Electronics Corp. borrows $100 million to build anew factory. d. The federal government reduces personal income tax rates.
D. Fiscal policies are policies of the federal government for the purpose of increasing or decreasing aggregate demand to fight either unemployment or inflation.
3. Demand-pull inflation is induced by a. inward shift in the aggregate demand curve. b. inward shift in the aggregate supply curve. c. outward shift in the aggregate supply and demand curves. d. outward shift in the aggregate demand curve.
D. If you draw a downward sloping demand curve and an upward sloping supply curve on a piece of paper and then move the demand curve to the right, you will see that prices will increase. This is called demand-pull inflation.
4. Cost-push inflation is typically induced by a. inward shift in the demand curve. b. inward shift in the aggregate supply and demand curves. c. outward shift in the demand curve. d. inward shift in the supply curve.
D. If you draw a downward sloping demand curve and an upward sloping supply curve on a piece of paper and then move the supply curve to the left, you will see that prices will increase. This is called cost-push inflation.
40. The idea that non-inflationary economic growth can be induced by government programs designed to increase production and labor effort is called a. the balanced budget multiplier. b. the feedback effect. c. an automatic stabilizer. d. supply side economics.
D. Keynesian economics stresses a reliance on the demand side of the equation. Supply side economics dwells on the supply side of the equation. A decrease in costs will move the aggregate supply curve to the right, thus prices decline and real GDP increases.
28. The "Golden Age" of fiscal policy - that decade in which it was most in political favor and in which it seemed to work best - was a. the 1930's. b. the 1940's. c. the 1950's. d. the 1960's. e. the 1970's.
D. Keynesian economics was at its peak popularity in the 1960's. The stagflation of the 1970's made us realize the limitations of Keynesian policies.
4. If government purchases of good and services increase by $10 billion when the MPC is .8 and the MPS is therefore .2, then a. real GDP will increase by $16 billion. b. real GDP will increase by $20 billion. c. real GDP will increase by $40 billion. d. real GDP will increase by $50 billion.
D. The formula for the multiplier is 1/MPS. Because the MPS is 2/10, which equals 1/5, the multiplier is equal to 1 divided by 1/5 or 5. Now take the multiplier and multiply it by the spending increase and you get 5 x $10 billion = $50 billion.
17. The average rate of inflation during the Great Depression of the 1930s was a. very high. b. moderate. c. zero. d. prices actually declined, we experienced deflation not inflation.
D. The inflation rate prior to WWII was not only low but during the 1930's we actually experienced substantial deflation because of the Great Depression.
14. When net taxes and government purchases are reduced by the same amount a. there will be an increase in real GDP equal to the size of the reduction. b. there will be a decrease in real GDP equal to the size of the reduction. c. there will be an increase in real GDP that depends upon the size of the multiplier. d. there will be a decrease in the real GDP depending on the size of the multiplier.
D. The multiplier works in reverse. If there is a reduction of X amount of spending, real GDP will decrease by a multiple of that decrease.
36. President Reagan and the U.S. Congress agreed on substantial changes in the federal budget in the early 1980's. Among these changes was a. a decrease in defense spending. b. a 3% tax reduction. c. a 13% tax reduction. d. a 23% tax reduction.
D. We had the largest tax decrease in history under President Reagan. The big tax decreases in the early 1980's contributed greatly to the prosperity of the 1990's.
34. Changes in discretionary fiscal policy (e.g., taxes) and automatic stabilizers (e.g., unemployment insurance benefits) can have significant unintended effects on all of the following except a. the incentive to work. b. the incentive to spend. c. the incentive to save. d. the incentive to purchase imported goods.
D. Whether people purchase imported goods or not has nothing to do with discretionary fiscal policies.
43. An annually balanced budget a. is the surest path to economic stability. b. is required by the U.S. Constitution. c. accentuates cyclical swings by increasing government spending during expansions and reducing it during recessions.
C. During certain recessions the problem is insufficient aggregate demand, so we would want the government to increase its spending. During expansions, the problem could be too much spending, so we would want the government to spend less. A mandated annually balance budget would hamper this process.
11. The real rate of interest can best be expressed as the a. nominal interest rate minus the real rate. b. inflation rate minus the nominal interest rate. c. nominal interest rate minus the inflation rate. d. inflation rate minus the real interest rate.
C. For example, in the previous question, your buying power went down by 1% because 14% minus 13% equals -1%.
42. According the budget philosophy known as functional finance a. the budget should be balanced annually. b. surpluses should be run during periods of prosperity and deficits should be run during recessions. c. the government should not worry about whether the budget is balanced and worry instead about reaching the potential output level.
C. Functional finance is a budget philosophy aiming fiscal policy at achieving potential GDP rather than balancing budgets either annually or over the business cycle.