Quiz #6

Why is it more difficult to time fiscal policy than monetary policy (Page 960)

1. Control over monetary policy is concentrated in the hands of the Federal Open Market Committee which can change monetary policy at any of its meetings, by contrast the president and a majority of the 535 members of congress have to agree on changes in fiscal policy, the delays can be very long 2. Even after a change in fiscal policy has been approved it takes time to implement

Crowding Out

A decline in private expenditures as a result of an increase in government purchases

Fiscal Policy

Changes in federal taxes and purchases that are intended to achieve macroeconomic policy goals

Federal Debt

Every time the federal government runs a budget deficit, the Treasury must borrow funds from investors by selling Treasury securities, there are many more years of federal budget deficits than years of federal budget surpluses. As a result, the total number of treasury bonds outstanding has grown over the years, the total value of U.S treasury bonds outstanding is called Federal government debt or sometimes national debt, each year the federal budget is in deficit, the federal government debt grows, each year the federal budget is in surplus, the debt shrinks

Multiplier Effect

The series of induced increases in consumption spending that results from an initial increase in autonomous expenditures