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Questions and Answers
Fiscal policy is carried out primarily by:
Fiscal policy is carried out primarily by:
- state and local governments working together
- state governments alone
- the Federal government (correct)
- local governments alone
Discretionary fiscal policy refers to:
Discretionary fiscal policy refers to:
- any change in government spending or taxes that destabilizes the economy
- the authority that the President has to change personal income tax rates
- changes in taxes and government expenditures made by Congress to stabilize the economy (correct)
- the changes in taxes and transfers that occur as GDP changes
Countercyclical discretionary fiscal policy calls for:
Countercyclical discretionary fiscal policy calls for:
- surpluses during recessions and deficits during periods of demand-pull inflation
- surpluses during both recessions and periods of demand-pull inflation
- deficits during recessions and surpluses during periods of demand-pull inflation (correct)
- deficits during both recessions and periods of demand-pull inflation
Fiscal policy refers to the:
Fiscal policy refers to the:
Discretionary fiscal policy is so named because it:
Discretionary fiscal policy is so named because it:
Expansionary fiscal policy is so named because it:
Expansionary fiscal policy is so named because it:
Contractionary fiscal policy is so named because it:
Contractionary fiscal policy is so named because it:
An economist who favors smaller government would recommend:
An economist who favors smaller government would recommend:
If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by:
If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by:
If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by:
If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by:
An economist who favored expanded government would recommend:
An economist who favored expanded government would recommend:
If the MPS in an economy is 0.4, government could shift the aggregate demand curve leftward by $50 billion by:
If the MPS in an economy is 0.4, government could shift the aggregate demand curve leftward by $50 billion by:
If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $60 billion by:
If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $60 billion by:
Discretionary fiscal policy will stabilize the economy most when:
Discretionary fiscal policy will stabilize the economy most when:
Study Notes
Fiscal Policy Overview
- Fiscal policy is executed mainly by the Federal government.
- It involves government spending and taxation to stabilize the economy, enhance output, and maintain employment levels while controlling price levels.
Discretionary Fiscal Policy
- Discretionary fiscal policy involves intentional changes in government spending or taxes aimed at stabilizing the economy, enacted by Congress.
- It differs from automatic stabilizers which operate without additional legislative action.
Countercyclical Fiscal Policy
- This policy advocates for deficits during economic downturns (recessions) and surpluses during periods of high demand (inflation).
Expansionary and Contractionary Fiscal Policy
- Expansionary fiscal policy aims to boost real GDP, often through increased government spending.
- Contractionary fiscal policy seeks to reduce aggregate demand, stabilizing prices by cutting government spending or increasing taxes.
Economic Recommendations
- Economists favoring smaller government advocate for tax cuts during recessions while decreasing government spending during inflation.
- Conversely, those supporting a larger government recommend increasing spending during recessions and raising taxes during inflation.
Aggregate Demand and Fiscal Shifts
- If the Marginal Propensity to Save (MPS) is 0.1, a $4 billion increase in government spending could shift aggregate demand by $40 billion.
- If the MPS is 0.4, reducing government expenditures by $20 billion can lead to a leftward shift in aggregate demand of $50 billion.
- If Marginal Propensity to Consume (MPC) is 0.8, a $25 billion increase in government spending can position aggregate demand $100 billion higher.
Stabilization Effectiveness
- Fiscal policies are most effective in stabilizing the economy when deficits occur during recessions and surpluses are realized during inflationary periods.
Studying That Suits You
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Description
Test your knowledge on fiscal policy with these Chapter 13 flashcards. Each card presents a question to enhance your understanding of government spending and taxation principles. Perfect for students who want to reinforce their learning.
