Fiscal Policy

Question 1

Real GDP should increases with a increasing in governament expenses and taxes because:

Answer 1

Multiplier effect of Expenditures x Taxes.

Because only part of tax enter to marginal propense to consume (portanto diminuir os gastos)

Question 2

Arguments about being concern about fiscal debt

What about against being concern?

crowd-out effect

Answer 2

1. Need for future taxes
   .Potential borrowing governament increasing, Increase in interest rates,
   Expulsar investimento privado
2. Ricardian equivalence
   Doesn’t matter the way government will finance the debt (Fiscal or money).
   Effect in total demand is the same
3. Crowding out
   Reduction in private sector investments

result of higher interest rates

because of the budget deficit that will be financed by private sector

Question 3

Action Lag
Impact Lag
Recognition lag

Answer 3

Action - Time do processo inteiro: Discuss, enact and implement

impact - Time for fiscal a fiscal policy makes effect

Recognition - Fiscal authorities to recognize the need for fiscal policy response

Question 4

What is a discretionary policy:

Automatic stabilizers are:

Automatic stabilize work examples:

explanation of the 3rd example

Answer 4

1.Active decisions regarding spending and taxing to affect econ growth

2. Increase in transfer payments (Tax wealth)

Decrease in tax revenue

Results in Econ contraction WITHOut LEGISLATION

(Increase deficit, decrease surplus)

3.
Corporate profit taxes
progressive income taxes
Unemployment compensation

Explanation
Unemployment = Rises and falls with business cycles
Therefore
Example of automatic fiscal policy stabilizer