Fiscal Policy & Govt. spending

Question 1

Define the business cycle

Answer 1

Oscillation btwn. “boom” & “Bust

Question 2

What is the trend

Answer 2

Potential real GDP

Question 3

Fiscal Policy

Answer 3

changes in fed. taxes & purchases to achieve macroeconomic policy objectives

Question 4

define macroeconomic policy objectives

Answer 4

High employment, price stability, high rates of eco. growth

Question 5

The two types of fiscal policy are..

Answer 5

1. Expansionary F.P.
2. contradictory F.P.

Question 6

expansionary fiscal policy

Answer 6

Rise in govt. purchases OR lower taxes to rise aggregate demand

Question 7

contradictory fiscal policy

Answer 7

lower in govt. purchases OR rise taxes to lower aggregate demand

Question 8

What is the largest portion that govt spending is directed to

Answer 8

Transfer payments (social security, medicare, etc.)

Question 9

when do we use expansionary fiscal policy

Answer 9

when the economy is within a downfall (bust)

Question 10

when do we use contradictory fiscal policy

Answer 10

when the economy is too good (boom)

Question 11

What are some lags in fiscal policy

Answer 11

1. implementation takes time
2. the gap for collection of data
3. The future is UNPREDICTABLE, once fiscal policy is implemented it cannot be stopped even if the economy fixes itself

Question 12

should budgets (for govt) be made every year? why/why not

Answer 12

No. fiscal policy is unpredictable and attempting to produce “balanced” budgets in a unpredictable economy could create “booms” & “busts”

Question 13

what is debt-GDP ratio

Answer 13

technically debt to income ratio (ex. raise income to mitigate debt

Question 14

define implicit debt

Answer 14

owed not atm, but owed eventually (like a promise.)