Econ- exam 3 / final review - fiscal policy

The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the

legislative lag

When crowding out occurs in an economy, it can reduce expenditures for

both consumer purchases and business investments.

An increase in personal income tax rates would tend to reduce

consumption

Fiscal policy is sometimes initiated on the advice of the

council of economic advisers

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

decrease and tax revenues increase

Which of the following would not be considered an automatic stabilizer?

defense spending

When the federal government cuts taxes and increases purchases to stimulate the economy during a period of recession, such actions are designed to be

expansionary

When the federal government uses taxation and purchasing actions to stimulate the economy it is conducting

fiscal policy

Which of the following is an example of built-in stability? As real GDP decreases,

income tax revenues decrease and transfer payments increase

One of the potential downsides of expansionary fiscal policy is that it often increases

national debt

The short-term fluctuations experienced in the economy due to changes in levels of economic activity are called

the business cycle

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

Which of the following serves as an automatic stabilizer in the economy?

the progressive income tax

Using fiscal policy to stabilize the economy is difficult because

there are time lags involved in the use of fiscal policy

One timing problem in using fiscal policy to counter a recession is the "implementation lag" that occurs between the

time fiscal action is taken and the time that the action has its effect on the economy.

One timing problem in using fiscal policy to counter a recession is the "legislative lag" that occurs between the

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

A recession is defined as at least ______ consecutive quarters of decline in real GDP.

two