Fiscal policy review

Discretionary fiscal policy:

-govt provides stimulus funds to repair roads -congress proceed a tax rebate to encourage addition spending in order to reduce unemployment rate -the pres and congress reduce tax rates to increase the amount of investment soending

Which of the following is an example of an expansionary fiscal policy?

A decrease in taxes

What are the gains to be had from simplifying the tax code?

All of the aboce

Revenue the fed govt collects from the individual income tax declines during a recession

An automatic stabilizer

Total the fed govt lays out for unemployment insurance decreases during an expansion

Automatic stabilizer

govt spending and taxes that increase or decrease without any actions taken by the govt are referred to as

Automatic stabilizers

If the govt increase expenditure without raising taxes, this will

Cause interest rate to increase thereby reducing private investment and crowing out the private sector Cause a decrease in the domestic exchange rate which will increase exports and decrease imports

What is it meant by crowding out?

Decline in private expenditures as a result of increases in got purchases

The federal govt increasing spending on rebuilding the new jersey shore following a hurricane

Discretionary fiscal Policy

Congress and the pres enact a temporary cut in payroll taxes

Discretionary fiscal policy

In what ways does the fed budget serve as an automatic stabilizer for the economy?

During a recession, there is an increase in govt expenditures for tanager payments and a decrease in taxes as wages an profits fall. During an expansion profits rise

Which of the following statements is most accurate regarding fiscal policy and monetary policy?

Fiscal policy includes changes in government spending and taxes and is controlled by fed govt. monetary includes changes in money supply and interest rates. Both are intended to achieve macroeconomic objectives

Fiscal policy refers to:

Govt use of taxes and expenditures to achieve macroeconomic policy objectives

Goal of expansionary fiscal policy

Increase aggregate demand

What actions can congress and the pres take to move the economy back to potential GDP?

Increase govt spending or decrease taxes

If govt purchases were to decrease by $300 bil or if taxes were ^ by $300 bil, the equilibrium level of real GDP would decrease by

More than $300 bil Incorrext

Fed changes required gasoline mileage for new cars

Not a fiscal Policy

FR sells treasury securities

Not a fiscal policy

Expansionary fiscal policy has a ____ multiplier effect in equilibrium at real GDP, and contractionary has a ____ effect

Positive; Negative

Which best describes crowding out in short and long run

Short run-may not fully crowd out Long run- complete crowding out

What is the difference between the federal budget deficit and federal govt debt?

The fed budget deficit is the year-to-year short fall in tax revenues relative to Govt spending (T<G+TR) financed through govt bonds. The FEd govt debt is the acumulation of all past deficits

As the tax rate increases,

The multiplier effect decreases