fiscal policy Flashcards

1
Q

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability, healthy rates of economic growth, and high employment.

A

taxes; purchases

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2
Q

Fiscal policy refers to the:

A

spending and taxing policies used by the government to influence the level of economy activity.

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3
Q

he largest source of revenue for the Australian federal government is:

A

personal income tax.

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4
Q

If the economy is growing beyond potential GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in:

A

taxes.

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5
Q

An increase in government purchases of $200 billion will shift the aggregate demand curve to the right by:

A

more than $200b

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6
Q

what is an automatic stabiliser?

A

a tax or form of government expenditure that has the effect of reducing the size of business cycle fluctuations.

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7
Q

A federal budget deficit acts as an automatic stabiliser because

A

government tax revenues decrease during a recession

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8
Q

Crowding out results in:

A

higher interest rates, a higher exchange rate, and lower net exports

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9
Q

The dynamic aggregate demand and aggregate supply model takes into account that

A
  1. the economy experiences continuing inflation, with the price level rising every year
  2. the economy experiences long-run growth, with the LRAS curve shifting to the right every year
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10
Q

To fight economic contractions and recessions the government can:

A

increase government purchases or cut taxes

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11
Q

expansionary fiscal policy causes the aggregate demand
(AD) curve to

A

shift to the right by more than it otherwise would, raising the level of real GDP and the price level.

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12
Q

To fight rising inflation, the government can

A

decrease government purchases or raise taxes

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13
Q

contractionary fiscal policy causes the aggregate demand curve to…

A

shift to the right by less than it otherwise would, reducing the increase in real GDP and the price level.

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14
Q

Autonomous expenditure is

A

expenditure that does not depend on the level of real GDP.

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15
Q

Induced expenditure is

A

expenditure that depends on the level of real GDP.

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16
Q

An autonomous change in expenditure will cause

A

rounds of induced changes in expenditure. Therefore, an autonomous change in expenditure will have a multiplier effect on equilibrium GDP

17
Q

The ________ is the process by which an increase in autonomous expenditure leads to a larger increase in real GDP.

A

multiplier effect

18
Q

is the ratio of the change in equilibrium GDP to the change in autonomous expenditure.

A

the multiplier

19
Q

Because of the multiplier effect, an increase in government purchases or a cut in taxes will have a multiplied effect on

A

equilibrium real GDP.

20
Q

The government purchases multiplier is equal to the

A

change in equilibrium real GDP divided by the change in government purchases

21
Q

The tax multiplier is equal to the change in equilibrium real GDP divided by the change in

A

taxes

22
Q

Increases in government purchases and cuts in taxes have a _____ multiplier effect on equilibrium real GDP

A

Positive

23
Q

Decreases in government purchases and increases in taxes

A

have a negative multiplier effect on equilibrium real GDP.

24
Q

what is crowding out

A

A decline in private expenditure as a result of an increase in government purchases

25
Q

A budget deficit occurs when the federal government’s expenditures are

A

greater than its tax revenues

26
Q

________ occurs when the federal government’s expenditures are less than its tax revenues.

A

budget surplus

27
Q

A budget deficit automatically ________ during economic contractions and recessions and ______ during economic expansions and booms.

A

increases
Decreases

28
Q

Government net debt is the difference between the amount of

A

funds the government borrows and the amount it lends

29
Q

The automatic movements in the federal budget help to stabilise the economy by

A

cushioning the fall in spending during contractions and recessions and restraining the increase in spending during expansions and booms.

30
Q

the structural budget defecit or surplus measures…

A

what the deficit or surplus would be if the economy were at potential GDP.

31
Q

Some fiscal policy actions are intended to have long-run effects by

A

expanding the productive capacity of the economy and increasing the rate of economic growth

32
Q

Because these policy actions primarily affect aggregate ____ rather than aggregate ______, they are sometimes referred to as _________

A

supply
demand
supply-side policies

33
Q

The difference between the pre-tax and post-tax return to an economic activity is known as the

A

tax wedge