Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/55

Click to flip

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
!