Chapter 13
When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is
Discretionary fiscal policy
When the Federal government uses taxation and spending actions to stimulate the economy it is conducting
Fiscal Policy
if the cyclically-adjusted budget shows a deficit zero and the actual budget shows a deficit of about $150 billion, it can be concluded that there is
a cyclical deficit
what would cause a shift to the left (see graph)
a decrease in taxes and an increase in government spending
what would cause a shift to the right
an increase in taxes and a decrease in government spending
assume that the economy is in a recession and there is a budget deficit. a strict balanced-budged rule that would require the federal government to balance its budget during a recession would be
contractionary and worsen the effects of the recession
if the U.S. congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of
contractionary fiscal policy
the cyclically-adjusted surplus in the U.S. went from +1.2% of GDP in 2000 to +0.6 of GDP in 2002. this suggests that the government during that period
cut taxes and increased spending
the Great Recession of 2007-09 and the consequent policy response made the
cyclically-adjusted deficit grow during that period
the intent of contractionary fiscal policy is to
decrease aggregate demand
due to automatic stabilizers, when the nation's total income rise, government transfer spending
decrease and tax revenues increase
which of the following is an example of built-in stability? as real GDP decreases, income tax revenues
decrease and transfer payments increase
the set of fiscal policies that would be most contractionary would be a
decrease in government spending and an increase in taxes
the American Recovery and Reinvestment act of 2009 is a clear example of
discretionary fiscal policy that made the cyclically-adjusted budget become more negative
in year 1, the actual budget deficit was $200 billion and the cyclically-adjusted deficit was $150 billion. In year 2, the actual budget deficit was $225 billion and the cyclically-adjusted deficit was $175 billion. It can be concluded that fiscal policy from year 1 to year 2 became more
expansionary
if congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of
expansionary fiscal policy
the cyclically-adjusted surplus as a percentage of GDP is 1% in year 1. This surplus becomes a deficit of 2% of GDP in year 2. it can be concluded that from year 1 to year 2 that
fiscal policy turned more expansionary
the cyclically-adjusted deficit as a percentage of GDP is 2% in year 1. This cyclically-adjusted deficit becomes 1% of GDP in year 2. It can be concluded from year 1 to year 2 that
fiscal policy was more contractionary
automatic stabilizers smooth fluctuations in the economy because they produce changes in the government
help offset changes in GDP
the American Recovery and Reinvestment act of 2009 included mostly
increase in government spending and decreases in taxes
if the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be
increased government spending or decreased taxation, or a combo
One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy
is not subject to the timing problems of discretionary policy
when changes in taxes and government spending occur in the economy without explicit action by congress, such policy is called
non discretionary fiscal policy
if you are told that the government had an actual budget deficit of $50 billion, then you would
not be able to determine the direction of fiscal policy from the information
as the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system
serves as an automatic stabilizer for the economy
one timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the
start of the recession and the time it takes to recognize that the recession has started
if the government wishes to increase the level of real GDp, it might reduce
taxes
the cyclically-adjusted budget estimates the Federal budget deficit or surplus if
the economy were at full employment
one timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the
time fiscal action is taken and the time that the action had its effects on the economy
one timing problem in using fiscal policy to counter a recession is the "administrative lag" that occurs between the
time the need for the fiscal action is recognized and the time that the action is taken