Questions (Fiscal Policy) Flashcards
Goal of contractionary fiscal policy is to..?
Shift the AD curve left
An appropriate fiscal policy for demand-pull inflation is..?
Decrease in gov spending & tax increase.
A economy w/ a MPC of 0.75, the gov could shift the AD curve to the right by $160 billion if they…?
increased gov spending by $40 billion.
The tax multiplier is −3, MPC is 0.75, and current real GDP is $400 billion less than the full employment level of real GDP. The appropriate action is..?
a tax cut of $133.33 billion.
Do automatic stabilizers involve Congress passing legislation?
NO!
Is changes in government spending considered when determining appropriate fiscal policy?
YES
Is Policy lag associated with fiscal policy
No
Do automatic stabilizers involve transfer payments?
YES
Is changes in interest rates considered when determining appropriate fiscal policy?
NO
Is implementation lag associated with fiscal policy?
Yes
If gov expenditures increase by $50 billion, assuming all other factors stay
constant, we would expect real GDP in the long run to..?
increase by more than $50 billion.
During a recession, the quickest way for the government to increase economic output would be to..?
increase gov purchases & reduce taxes.
When successfully implemented, expansionary fiscal policy will cause..?
Rightward shift of the AD curve
The primary tools the government uses for contractionary fiscal policy are..?
tax increases & gov purchase reductions
When successfully implemented, contractionary fiscal policy will cause..?
Leftward shift of the AD curve
