Fiscal policy correct answers Government decisions about the level of taxation or government spending
AD= correct answers C+I+G+NX
Government can affect AD by correct answers - changing G
- changing taxes
an increase in government spending shifts AD....
a decrease in government spendin...
econ 203 chapter 13 || Already Passed.
Fiscal policy correct answers Government decisions about the level of taxation or government
spending
AD= correct answers C+I+G+NX
Government can affect AD by correct answers - changing G
- changing taxes
an increase in government spending shifts AD....
a decrease in government spending shifts AD.... correct answers out/to the right
in/to the left
Multiplier effect and crowding out indirectly effect correct answers C and I components of AD
Tax policy directly effects AD through correct answers Consumption
Consumption depends on correct answers disposable income (whats left after taxes)
if the tax rate increases correct answers workers take home less disposable income and they will
reduce consumption.
shifting AD inwards (to the left)
expansionary fiscal policy correct answers government spending and taxation intended to
increase AD/ shift to the right
expansionary effects correct answers increase government spending, and lower taxes
Contractionary Fiscal policy correct answers government spending and taxation intended to
decrease AD/ shift to the left
Contractionary effects correct answers decrease government spending and higher taxes
Automatic correction correct answers painful and slow process
How do policy makers try to smooth fluctuations in the economy correct answers Fiscal policy
Should the government intervene when the GDP is above its potential level? why? what should
they do? correct answers yes.
positive economic shocks may cause the economy to expand too rapidly and may lead to a
recession.
, They should implement contractionary fiscal policy to slow down the economy by cutting
government spending or increasing taxes, shifting AD back to the left.
Marginal propensity to consume ( MPC) correct answers the amount consumption increases
when disposable income increases by $1
The multiplier effect correct answers The increase in consumer spending that occurs when
spending by one person causes others to spend more too
Multiplier = correct answers change in GDP (output)/ Change in PAE
Government spending multiplier= correct answers 1/ (1-MPC)
Government spending multiplier correct answers the amount that GDP increases when
government spending increases by $1
Taxation multiplier correct answers the amount that GDP increases when taxes increases by $1
What do Tax cuts do to GDP? correct answers boosts GDP indirectly through consumption.
increasing the disposable income
Which is bigger, the multiplier effect of tax cuts or the multiplier effect of government spending?
correct answers government spending
The multiplier model suggests that correct answers government spending is a stronger instrument
than ax cuts
crowding out effect correct answers increase in government spending crowds (reduce) out
private investment
When does crowding out commonly happen correct answers when the government has to borrow
in order to finance the extra spending
when the government borrows, interest rates tend to________ and this can _________
investment by the private sector. correct answers increase, decrease
Limits of fiscal policy correct answers - fiscal policies are often educated guesses
- time lags
- public debt
Information lag correct answers Understanding the current economy. Collection of data and
confirming the trend takes time.
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