Chapter 27

what is an example of expansionary fiscal policy?

a decrease in taxes

when actual GDP is below potential GDP the budget deficit increases because of:

an increase in transfer payments and a decrease in tax revenues

in the long run, increases in government purchases result in

complete crowding out

automatic stabilizers

government spending and taxes that increase or decrease without any actions taken by the government

the term crowding out refers to

government spending increases interest rates and decreases private investment

if the government increases expenditure without raising taxes, this will

increase the budget deficit and require the government to borrow additional funds, cause the interest rate to increase

a policy of decreasing the marginal income tax rate to increase labor supply is intended to result in:

long run supply side effects

The higher the tax rate, the ________ the multiplier effect

smaller

the cyclically adjusted budget deficit is the deficit in the federal government's budget if:

the economy were at potential GDP

fiscal policy refers to

the govs use of taxes and expenditures to achieve macroeconomic policy objectives

Why might cutting government spending as a fiscal policy be a more difficult policy than the use of monetary policy to slow down an economy experiencing​ inflation?

the legislative process experiences longer delays than monetary policy

when the economy is experiencing a recession automatic stabilizers will cause

transfer payments to increase and tax revenues to decrease

what is considered "good policy" for the government to run a budget deficit?

when borrowing is used for long-lived capital goods.

does government spending ever reduce private spending

yes, due to crowding out