ECON-200 Ch 13 Study Guide

Refer to the graph above. What combination would most likely cause a shift from AD1 to AD2?

A decrease in taxes and an increase in government spending

One important consequence of the public debt in the United States is that

it transfers a portion of real output to foreign nations

Fiscal policy refers to the

manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.

Refer to the diagram above. The economy is at equilibrium at Point C, what fiscal policy would increase real GDP?

Increase aggregate demand from AD1 to AD2 by increasing government spending

An expansionary fiscal policy may be

Partially offset by the crowding-out effect

In the united states, income taxes and transfer payments

act as automatic stabilizers for fluctuations in income

Expansionary fiscal policy is so named because it

is designed to expand real GDP

If Congress passes legislation to raise taxes to control demand-pull inflation then this would be an example of

contractionary fiscal policy

The crowding-out effect suggests that

increases in government spending may raise the interest rate and thereby reduce investment.

The set of fiscal policies that would be most contractionary would be a

decrease in government spending and an increase in taxes

Due to automatic stabilizers, when the nation's total income rises, government transfer spending:

decreases and tax revenues increase

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n):

expansionary fiscal policy

An expansionary fiscal policy can be illustrated by an

increase in aggregate demand

When changes to taxes and spending occur in the economy without explicit action by the Federal government, such policy is:

nondiscrectionary

The Council of Economic Advisors gives economic advice to the

president

The time that elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a

recognition lag

In an aggregate demand and aggregate supply graph an expansionary fiscal policy can best be illustrated as

rightward shift in the aggregate demand curve

Fiscal policy is enacted through changes in

taxation and government spending

One timing problem with fiscal policy to counter a recession is a "operational lag" that occurs between the:

time the need for fiscal action is recognized and the time that the action is taken

One timing problem with fiscal policy to counter a recession is a "administrative lag" that occurs between the:

time the need for the fiscal action is recognized at the time that the action is taken