ECON CH 9

Question 1

discretionary fiscal policy

Answer 1

deliberate changes in government spending (G), and taxation (T) to stabilize the economy

Question 2

when gov enters our simple economy HHs can only spend

Answer 2

Yd=Y-T

Question 3

discretionary fiscal policy

Answer 3

is the deliberate manipulation of taxes, and gov purchases in order to influence macro economic variables such as: aggregate output, unemployment, and inflation

Question 4

the gov spending multiplier

Answer 4

is the ratio of the change in the equilibrium level of output to a change in gov spending

Question 5

a tax cut (T<0)

Answer 5

increases disposable income (Yd), and leads to more consumption spending

Question 6

the tax multiplier

Answer 6

is a negative number and it is smaller (in abs value) than the gov spending multiplier

Question 7

the tax multiplier equation

Answer 7

MPC/1-MPC

Question 8

federal budget

Answer 8

is the budget of the federal gov

Question 9

T-G>0

Answer 9

surplus

Question 10

T-G<0

Answer 10

deficit

Question 11

the budget deficit (or surplus)

Answer 11

is the difference between gov spending and gov tax revenue in a given period (usually a year)

Question 12

if G exceeds T

Answer 12

then the gov must borrow from the public to finance the deficit. it does so by selling treasury bonds and bills

Question 13

federal debt

Answer 13

is the total amount owed by the federal gov. the debt is the sum of all accumulation deficits minus surpluses over time

Question 14

tax revenue depends on

Answer 14

the taxable income

Question 15

income depends on

Answer 15

on the state of the economy

Question 16

full-employment budget

Answer 16

is what the federal budget would be if the economy were producing at a full employment level of output (natural rate of unemployment)

Question 17

cyclical deficit

Answer 17

is the deficit that occurs b/c of a downturn in the business cycle

Question 18

structural deficit

Answer 18

is the deficit that remains at full employment

Question 19

automatic stabilizers

Answer 19

natural changes in fiscal variables (revenue and expenditure items in the fed budget) that automatically change with the state of the economy in such a way as to stabilize GDP