CH. 7 - Fiscal Policy

Question 1

Automatic Stabilizers

Answer 1

Tax laws + Gov. Spending automatically spending out when booming and spending in when slowing down

Question 2

Balanced Budget

Answer 2

Tax Revenues = Gov. Spending

Question 3

Budget-Balance Fiscal Policy

Answer 3

Fiscal policy - budget balanced in each budget period

Question 4

Budget Deficit

Answer 4

Gov. spending in excess of tax revenues

Question 5

Budget Surplus

Answer 5

Tax revenue in excess of Gov. spending

Question 6

Countercyclical Fiscal Policy

Answer 6

Adjustments of Gov. spending and Taxation = reduce inflationary or recessionary gaps

Question 7

Crowding Out Effect

Answer 7

Gov. borrowing to finance budget deficit = interest rates RISE = Private Investment decreases

Question 8

Cyclical Deficit

Answer 8

Budget deficit b/c of Recession

Question 9

Cyclically Balanced Budget Deficit

Answer 9

Use Countercyclical Fiscal Policy to balance the budget over the business cycle

Question 10

Fiscal Policy

Answer 10

Gov. approach towards its own spending and taxation

Question 11

National Debt

Answer 11

Budget deficit - surplus

Question 12

Procyclical

Answer 12

Gov action that pushes economy in same direction it is going

Question 13

Structural Deficit

Answer 13

A budget deficit that would exist at full employment GDP

Amount of budget deficit in excess of cyclical deficit

Question 14

Equation: NTR

Answer 14

= Tax Revenue - Transfer Payments

Question 15

Equation: Balance Budget

Answer 15

= NTR - G