Chapter 13

Question 0

Crowding-out effect

Answer 0

The tendency of expansionary fiscal policy to cause a decrease in planned investment or planned consumption in the private sector; this decrease normally results from the rise in interest rates

Question 1

Fiscal policy

Answer 1

The discretionary change of government expenditures or taxes to achieve national economic goals, such as high employment with price stability

Question 2

Ricardian equivalence theorem

Answer 2

The proposition that an increase in the government budget deficit has no effect on aggregate demand

Question 3

Direct expenditure offsets

Answer 3

Actions on the part of the private sector in spending income that offset government fiscal policy actions. Any increase in government spending in an area that competes with the private sector will have some direct expenditure offset.

Question 4

Supply-side economics

Answer 4

The suggestion that creating incentives for individuals and firms to increase productivity will cause the aggregate supply curve to shift outward

Question 5

Recognition time lag

Answer 5

The time required to gather information about the current state of the economy

Question 6

Action time lag

Answer 6

The time between recognizing an economic problem and implementing policy to solve it. The action time lag is quite long for fiscal policy, which requires congressional approval.

Question 7

Effect time lag

Answer 7

The time that elapses between the implementation of a policy and the results of the policy

Question 8

Automatic, or built-in, stabilizers

Answer 8

Special provisions of certain federal programs that cause changes in desired aggregate expenditures without the action of Congress and the president. Examples are the federal progressive tax system and unemployment compensation