Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
55 Cards in this Set
- Front
- Back
fiscal policy
|
the discretionary changing of government expenditures or taxes to achieve national economic goes, such as high employment with price stability
|
|
discretionary fiscal policy is defined as
|
deliberate change in taxes/ and or government spending in order to change equilibrium real gdp and employment
|
|
if recessionary gap exists, it can be offset by ____; such policy entails______ or _____, which will cause the aggregate demand curve to shift ______; real gdp should ____ and price level should ____
|
expansionary fiscal policy
increasing government expenditures decreasing taxes rightward rise rise |
|
supply side effects can result from fiscal policy ax changes; if marginal tax rates rise this can induce laborers to substitute _____ for ________
|
leisure
income resulting from working |
|
if inflationary gap exists,_____ is in order, it can be eliminated if _______ or ______; this will cause the ad curve to shift ____ and real gdp to _____
|
contractionary fiscal policy
government expenditures decrease taxes increased leftward fall |
|
if the economy is already operating on its long-run aggregate supply curve, then fiscal policy actions which shift the ad curve will cause real gdp to change_____; and the price level will change ___ in the longrun relative to the short run
|
temporarily
more |
|
if government expenditures are financed by borrowing, a federal budget _____ will result, which can cause the interest rate to ___, which in turn will cause business investment and household consumption on ____ to ____; hence fiscal policy effects will be _____
|
deficit
rise durable fall reduced |
|
if households perceive government deficit spending as an increase in their future tax liabilities, they may save ____ according to the _____; hence fiscal policy effects will be _____
|
more
ricardian equivalence theorem reduced |
|
to the extent that government expenditures compete with the private sector, then such expenditures will _____ business investment expenditures; hence fiscal policy effects of an increase in government spending will be _____
|
discourage
reduced |
|
if US government deficit spending causes market interest rates to rise, businesses will want to ____ investment spending, and households desire to _____ spending on durable goods; hence the expansionary effects of an increase in government spending will be ____ by this indirect expenditure offset
|
decrease
decrease reduced |
|
The ____ indicates that tax revenues initially____ with higher tax rate as the tax rate is increased above a rate of 0 percent, but eventually tax revenues ___ as the tax rate is increased further
|
Laffer curve
rise fall |
|
if government expenditures or taxes change over the business cycle without deliberate action taken by congress, this is referred to as an ______ or built in_____;examples of automatic fiscal policy include _____ and _____; automatic fiscal policy ____ the magnitude of business cycle fluctuations
|
automatic fiscal policy
stabilizers progressive tax system unemployment compensation decreases |
|
discretionary fiscal policy is ______ to conduct because it usually takes ___ time for congress to enact such policy
|
difficult
much |
|
if the public perceives that deficit spending creates future tax liabilities, and it people wish to leave money to their heirs, then current saving ____; hence the net effect of deficit spending on interest rates is _____
|
increase
uncertain |
|
there are three time lags that hamper fiscal policy: ____, ____, and ____. the existence of time lags makes conducting fiscal policy _____ for policy makers
|
recognition
action effect harder |
|
because of automatic stabilizers, when the economy is in an expansion phase the government transfers ____ and tax revenues____; hence, expansions (other things constant) generate government budget _____
|
fall
rise surpluses |
|
the existence of automatic stabilizers makes our economy ____ stable; they also make it ____ to distinguish discretionary from automatic fiscal policy
|
more
difficult |
|
fiscal policy may involve changes in
|
taxes and/or government spending
|
|
an inflationary gap calls for
|
a decrease in government spending and or/ increase in taxes
|
|
a recessionary gap calls for
|
deficit spending
|
|
if an economy is already operating on its LRAS curve, an expansionary fiscal policy will eventually
|
cause the price level to change more because real gdp will not change
|
|
if government expenditures are financed by borrowing
|
a federal deficit is created which could cause interest rates to rise
|
|
higher interest rates will cause
|
offsetting expenditure reductions in the private sector
|
|
if interest rates rise as a result of deficit spending,
|
then businesses and households may choose to cut back on purchases of investment goods and durable goods
|
|
if households perceive and increase in federal deficit spending as an increase in their future tax liabilities
|
they may save more now, which would reduce the effects of expansionary fiscal policy
|
|
if government expenditures directly compete with the spending of the private sector,
|
then business investment will fall and tend to offset the effects of such a fiscal policy
|
|
crowding out implies that if federal deficits cause interest rates to rise,
|
businesses reduce investments and this will tend to offset fiscal policy effects
|
|
time lags make fiscal policy
|
more difficult because of the uncertainty they generate
|
|
if federal deficit spending causes interest rates to rise
|
households will purchase less consumer durables and businesses will invest less
|
|
if fiscal policy is pursued by raising marginal tax rates,
|
laborers may choose to work less and businesses might choose to make fewer investments
|
|
discretionary fiscal policy
|
deals with actions by congress and the president intended to affect economic performance
|
|
if a recessionary gap exists, proper fiscal policy could entail
|
increased government spending
decreased taxes deficit spending |
|
if government expenditures rise to counteract a recessionary gap
|
the ad curve shifts rightward
|
|
if an inflationary gap exists
|
contractionary fiscal policy is appropriate
|
|
if a recessionary gap exists
|
it can be filled with increases in government spending or decreases in taxes or some combination of both
|
|
the economy is operating on its short run aggregate supply curve and an inflationary gap exists,
|
a contractionary fiscal policy is appropriate
leftward shifts in ad that cause some unemployment will be helpful a contractionary fiscal policy will eventually change only the price level |
|
if an inflationary gap exists, it can most efficiently be eliminated by some combination of
|
decreases in government spending and increases in taxes
|
|
which of the following will not offset fiscal policy
|
government spending financed by increased taxes
government spending financed by borrowing (deficit spending) automatic stabilizers |
|
which of the following can offset expansionary fiscal policy
|
higher interest rates resulting in deficit spending
private investment falling in areas competing with government expenditures perceptions by households that larger deficits imply increased future tax liabilities |
|
which one of the following may well result from increase government borrowing resulting from deficit spending?
|
higher interest rates
|
|
if taxes fall then
|
the aggregate demand curve shifts to the right
|
|
if government expenditures exceed tax receipts then, other things being constant,
|
a deficit exists
|
|
if marginal tax rates rise
|
laborers may choose less income (work), which is taxed and more leisure, which is not taxed
the tax base could shrink productivity could fall eventually as business investment falls |
|
fiscal policy
|
if difficult to implement because of time lag problems
|
|
time lags make fiscal policy _____
|
difficult
|
|
crowding out reduces the impact of
|
an expansionary fiscal policy
|
|
the ricardian equivalence theorem implies that
|
fiscal policy may be quite ineffective
|
|
stabilization policy
|
conscious attempt to achieve high employment and price stability
|
|
discretionary fiscal policy
|
change in tax law
|
|
automatic stabilizer
|
unemployment compensation
|
|
recessionary gap
|
recession period
|
|
inflationary gap
|
inflation period
|
|
time lags
|
recognition, action, effect
|
|
deficit spending
|
tax receipts less than government spending
|
|
page 61 to 62
|
!
|