actuall 13

Question 1

What is fiscal policy?

Answer 1

Changes in government spending and tax collections aimed at achieving full employment, price stability, and economic growth.

Question 2

What are the two types of fiscal policy?

Answer 2

Discretionary fiscal policy (requires government action) and nondiscretionary fiscal policy (automatic adjustments based on laws).

Question 3

What are the main tools of fiscal policy?

Answer 3

Government spending and tax collections.

Question 4

What are the limitations of fiscal policy?

Answer 4

Time lags, political influence, and the crowding-out effect.

Question 5

What is the goal of expansionary fiscal policy?

Answer 5

To increase aggregate demand (AD) and real GDP during a recession.

Question 6

What tools are used in expansionary fiscal policy?

Answer 6

Increased government spending, tax reductions, or a combination of both.

Question 7

What is the goal of contractionary fiscal policy?

Answer 7

To reduce aggregate demand and control inflation during demand-pull inflation.

Question 8

What tools are used in contractionary fiscal policy?

Answer 8

Decreased government spending, increased taxes, or a combination of both.

Question 9

What are automatic stabilizers?

Answer 9

Tax revenues and transfer payments that adjust automatically to changes in economic conditions.

Question 10

How do progressive taxes contribute to built-in stability?

Answer 10

They increase tax revenues proportionally as GDP rises, helping to moderate economic fluctuations.

Question 11

What is the role of transfer payments in built-in stability?

Answer 11

They increase during downturns (e.g., unemployment benefits) and decrease during expansions, stabilizing disposable income.

Question 12

What is the cyclically adjusted budget?

Answer 12

A measure of the government’s budget deficit or surplus at full-employment GDP, removing effects of cyclical changes in GDP.

Question 13

What indicates expansionary fiscal policy?

Answer 13

An increase in the cyclically adjusted deficit or a move toward deficit due to discretionary actions.

Question 14

What indicates contractionary fiscal policy?

Answer 14

A decrease in the cyclically adjusted deficit or a move toward surplus.

Question 15

What are the three timing lags in fiscal policy?

Answer 15

Recognition lag, administrative lag, and operational lag.

Question 16

What is the crowding-out effect?

Answer 16

Government borrowing raises interest rates, reducing private investment.

Question 17

How can political considerations affect fiscal policy?

Answer 17

Policies may be influenced by election cycles rather than economic necessity.

Question 18

Who holds U.S. public debt?

Answer 18

58% by the public, 42% by federal agencies and the Federal Reserve, with 26% held by foreign entities.

Question 19

How does debt impact income distribution?

Answer 19

Interest payments on debt disproportionately benefit wealthier individuals who own more government securities.

Question 20

Why is the U.S. unlikely to face bankruptcy due to public debt?

Answer 20

The government can refinance debt and raise taxes as needed.

Question 21

How does public debt affect future generations?

Answer 21

Much of the debt is internal, meaning repayments remain within the U.S. economy, reducing the burden on future generations.

Question 22

What is the crowding-out effect of high public debt?

Answer 22

It can raise interest rates, reducing private investment and future economic growth.

Question 23

What was the impact of the pandemic recession on the U.S. economy?

Answer 23

The GDP gap decreased from -10.7% in March 2020 to -2.8% by early 2021, aided by fiscal stimulus.

Question 24

What major fiscal policy was enacted during the Great Recession?

Answer 24

The American Recovery and Reinvestment Act (ARRA) of 2009, a $787 billion stimulus package.

Question 25

What are cyclical deficits?

Answer 25

Deficits that arise automatically during recessions due to lower tax revenues and higher transfer payments.

Question 26

What is the relationship between debt and GDP?

Answer 26

In 2021, U.S. public debt was 101% of GDP, up from 33% in 2000.