Multiplier And Stuff Test Flashcards
Does government spending or tax decreases have a bigger affect?
Government spending
What is the multiplier equation?
1/MPS
How do you find MPS?
1-MPC
What can you do with your money?
Save it or spend it
How can you figure out the multiplier from the graph?
Change in x/change in y
Or
GDP/DI
Why would we want neighboring countries’ economies to grow?
It gives us another trading partner so we would have more exports and more imports
If our currency appreciates what happens regarding trade?
Exports decrease, imports increase
What is discretionary fiscal policy?
Actions that are chosen to take affect
What is automatic policy?
It occurs do to the normal cycle of the business cycle
What are examples of automatic fiscal policy?
Recession raising unemployment compensation, Income raises so people pay more income tax
What are some examples of discretionary fiscal policy?
Government cuts personal income tax, government raised social security taxes, government raises corporate income tax
What is the employment act of 1946?
It commits the government to take actions to maintain stability in the economy
What is the council of economic advisors?
They help the president with economic decisions
What is the joint economic council?
It investigated economic problems, it helps the president “fight the war against the business cycle”
What are contractionary policies?
They drive down the economy when inflation is occurring
How does the government contract the economy?
Raise taxes or decrease government spending
What is expansionary policy?
Policy that drives the economy out of recession
What are ways the government expands the economy?
Lower taxes and increased government spending
Is inflation or unemployment more important to take care off?
Unemployment
Why must tax cuts be larger than gov. Spending increases?
Because people have a propensity to save rather than consume
To counteract the economy fiscal policy must be?
Counter cyclical
Can the multiplier be used to drive down the economy?
Yes, it works both ways
Borrowing and money creation are examples of?
Expansion
Debt reduction and idle surplus are examples of?
Contraction
Why is government spending perfectly elastic(horizontal)?
They don’t run out of funds and don’t ever completely stop spending
What is an automatic stabilizer?
The progressive tax
Where is deficit located on a graph?
The area to the left of the equilibrium
On a graph, where is surplus located?
To the right of the equilibrium
What is another built in economic stabilizer?
Any event that acts counter cyclical to the business cycle
Why does a balanced budget not work?
In times of hyperinflation or recession the government has no discretionary power to change spending, so the only way to try to fix it is change taxes which worsens both
What is recognition lag?
You don’t realize your in a recession until it’s too late to prevent it
What is administrative lag?
Government action takes too long to take effect
What is operational lag?
It takes too long for actions to have an impact on the economy
What is the crowding out effect?
A rise in interest rates results in decreased consumer investment because the government increases its investments; this reduces the multiplier
What happens to exports as expansionary policy is enacted?
They decline
What happens to net exports as contractionary policy is enacted?
Exports increase
What do supporters of supply side economics believe?
That lowering taxes and reducing government programs will give incentive to work and people will reinvest in business which will increases the persons tax bracket so aka. They pay more taxes
What is the tax multiplier formula?
-MPC/MPS
Investment and government spending multiplier?
1/MPS
Exports are an?
Injection
Imports are a
Leakage
When on the LRAS curve you are at the end of the intermediate phase what action should be taken?
Nothing, the economy is good!!
If you are in the recessionary phase of the LRAS curve what should you do?
Enact expansionary policy
If you are in the inflationary phase of the LRAS curve what should you do?
Enact contractionary policy
If you are at the beginning of the intermediate phase of the LRAS curve what should you do?
Enact slight expansionary policy
If you increase taxes and decrease gov spending you are enacting what policy?
Contractionary
Increasing taxes and increases government spending are what kind of policy?
Off setting
Decreasing taxes and decreasing gov spending are what kind of policy?
Off setting
Decreased taxes and increased gov spending are what kind of policy?
Expansionary
