Wk 5 - Practice: Fiscal Policy [due Day 5]

The condition Y = Yfull employment refers to _____ _____ equilibrium.

Blank 1: long Blank 2: run

A common definition of a(n) _____ is: a period in which an economy experiences a(n) _____ (decrease/increase) in real GDP for at least two consecutive quarters or six months.

Blank 1: recession Blank 2: decrease

The condition AD = AS refers to _____ _____ equilibrium.

Blank 1: short Blank 2: run

This policy involves involves decreasing government purchases and/or increasing taxes.

Contractionary fiscal policy

This policy involves increasing government purchases and/or decreasing taxes.

Expansionary fiscal policy

Fiscal policy relies on three assumptions: 1. Recognizing the start of a recession. 2. Government quickly determines effective policy. 3. The policy is immediately effective. Which of these assumptions hold in the real world?

None of the assumptions hold in the real world

Which of the following is a limitation of implementing fiscal policies during a recession?

There are lags that delay the effectiveness of fiscal policy.

The path to recovery using contractionary fiscal policy involves:

a jump start of decreased government spending followed by multiple rounds of decreased consumer spending.

What is the effect of a successful contractionary fiscal policy on price level and output?

both decrease

What is the effect of a successful expansionary fiscal policy on price level and output?

both increase

Price level and output both decrease from a successful ___________ fiscal policy.

contractionary

The application of fiscal policy to decrease aggregate demand is called _____ fiscal policy.

contractionary

When government spending decreases, AD:

decreases

The level of real GDP produced in an economy when it is operating at the natural rate of unemployment is called full _____ GDP.

employment

Price level and output both increase from a successful ___________ fiscal policy.

expansionary

The application of fiscal policy to increase aggregate demand is called _____ fiscal policy.

expansionary

Changes in government purchases and/or taxes designed to achieve full employment and low inflation is called _____ policy.

fiscal

Government _____ policy has limitations that reduce its effectiveness and may even cause the opposite of what was intended.

fiscal

Lags hamper the effectiveness of _____ policy

fiscal

Price level and output both decrease from a successful contractionary _____ policy.

fiscal

Changes in government purchases and/or taxes designed to achieve full employment and low inflation is called:

fiscal policy

The path to recovery using fiscal policy involves a jump start of decreased _____ spending followed by multiple rounds of decreased consumer spending as the economy recovers and incomes rise.

government

The multiplier effect is/are:

the concept that an additional dollar of expenditures will result in the creation of more than one dollar's worth of real GDP.

Full-employment GDP refers to:

the level of real GDP produced in an economy when it is operating at the natural rate of unemployment.

The concept that an additional dollar of expenditures will result in the creation of more than one dollar's worth of real GDP is called:

the multiplier effect

The concept that an additional dollar of expenditures will result in the creation of more than one dollar's worth of real GDP is called:

the multiplier effect.

We cannot know that a recession is occurring until we are in it. (True or False)

true

We usually do not have certainty about the state of the economy on any given day. (True or False)

true

When taxes increase, AD:

decreases.

When government spending increases, AD:

increases