Ch12 - Fiscal Policy/Natl Debt

Question 0

What are the two main parts of the govt budget?

Answer 0

Outlays (Govt spending) and tax revenue.

Question 1

Define Fiscal policy

Answer 1

Using changes in govt spending and taxes to affect spending.

Question 2

What are the 2 parts of govt spending?

Answer 2

Purchases - roads, govt salaries, computers

Transfers - social security, unemployment.

Question 3

What is the “Budget Deficit/Surplus”?

Answer 3

Difference between govt spending and govt income.

Question 4

G+TR=T

Answer 4

Balanced budget

Question 5

G+TR<T

Answer 5

Budget surplus

Question 6

G+TR>T

Answer 6

Budget deficit

Question 7

Define Recessionary gap.

Answer 7

Equilibrium GDP is less than full employment GDP

Question 8

Define inflationary gap.

Answer 8

When Equilibrium GDP is greater than Full employment GDP

Question 9

How an you create an Expansionary policy?

Answer 9

By increasing G or cutting T.

Question 10

What does an expansionary policy combat?

Answer 10

A recessionary gap

Question 11

How do you create a contractionary policy?

Answer 11

Raising T or cutting G.

Question 12

What does a contractionary policy combat?

Answer 12

Inflationary gap

Question 13

An expansionary policy shifts the aggregate demand curve which way?

Answer 13

To the right

Question 14

An contractionary policy shifts the aggregate demand curve which way?

Answer 14

To the left.

Question 15

What are the 2 effects of expansionary/contractionary policy?

Answer 15

Direct effects and multiplier effects

Question 16

What is the formula for the Multiplier?

Answer 16

1/(1-MPC)

Question 17

How do you apply the Multiplier (formula)?

Question 18

What are the 5 built in stabilizers?

Answer 18

1. Progressive tax rates
2. Unemployment payments
3. Personal savings
4. Credit availability
5. Other transfer payments

Question 19

Define “Discresionary Fiscal Policy”.

Answer 19

Deliberate policy measures by congress and pres to change tax rates and spending.

Question 20

What are the three timing issues associated with Fiscal Policy?

Answer 20

Recognition lag
decision lag
Impact lag

Question 21

What is crowding out?

Answer 21

G increases and private sector investment drops from increased money demand.

Question 22

What is Debt?

Answer 22

Cumulative total of all deficits and any surpluses

Question 23

What is Deficit?

Answer 23

Tax revenue is less than spending in a single year.

Question 24

Govt tax revenue>govt spending and transfers (T> G+TR) is what kind of budget?

Answer 24

Budget surplus

Question 25

Govt tax revenue< G+TR) is what kind of budget?

Answer 25

Budget deficit

Question 26

Define recessionary gap.

Answer 26

Actual GDP

Question 27

Define inflationary gap.

Answer 27

Actual GDP> potential (full employment) GDP

Question 28

What fiscal policy is used during recessionary gap?

Answer 28

Expansionary fiscal policy.

Question 29

What actions are taken for expansionary fiscal policy?

Answer 29

Cut taxes and increase gov spending.

Question 30

What fiscal policy is used during an inflationary gap?

Answer 30

Contractionary fiscal policy

Question 31

What actions are taken for contractionary policy?

Answer 31

Raising taxes and cut govt spending.

Question 32

What is the multiplier formula?

Answer 32

1/(1-MPC)

Question 33

What is the formula for change in GDP?

Question 34

What are two automatic stabilizers?

Answer 34

1. Progressive tax system (increased income increases tax burden, which slows spending) 2. Govt spending on unemployment (increased unemployment increases govt spending which cushions the spending decline caused by the fall in income)

Question 35

List the 5 problems with Fiscal policy.

Answer 35

1. Timing-lags (recog, decision, imp) 2. Political consideration-can only do what has been passed. 3. Future policy reversal 4. State and local gov may offset some impact 5. Crowding out effect

Question 36

How are deficits financed?

Answer 36

1. Borrowing from public (problem of crowding out). | 2. Print new money (problem of higher inflation)

Question 37

What is the difference between Debt and Deficit?

Answer 37

Deficit - spending greater than tax revenue in a single year. Debt - cumulative total of all deficits and surpluses.

Question 38

What is the normal payments on debt?

Answer 38

Usu. interest paid off (it's income for many in the future: SSI).