Questions and Answers
Fiscal policy is carried out primarily by:
Discretionary fiscal policy refers to:
Countercyclical discretionary fiscal policy calls for:
Fiscal policy refers to the:
Signup and view all the answers
Discretionary fiscal policy is so named because it:
Signup and view all the answers
Expansionary fiscal policy is so named because it:
Signup and view all the answers
Contractionary fiscal policy is so named because it:
Signup and view all the answers
An economist who favors smaller government would recommend:
Signup and view all the answers
If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by:
Signup and view all the answers
If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by:
Signup and view all the answers
An economist who favored expanded government would recommend:
Signup and view all the answers
If the MPS in an economy is 0.4, government could shift the aggregate demand curve leftward by $50 billion by:
Signup and view all the answers
If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $60 billion by:
Signup and view all the answers
Discretionary fiscal policy will stabilize the economy most when:
Signup and view all the answers
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
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
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.