Fiscal Policy And Debt

Question 1

In what types does the federal budget is split?

Answer 1

Discretionary and mandatory

Question 2

Discretionary spending

Answer 2

The budget that works its way through the appropriation process of congress each year and includes National defence, transportation, science, environment, education, security

Question 3

Mandatory spending

Answer 3

Authorised by permanent laws that does not go through the same appropriations process. Includes social security, Medicare, and interest rates on the national debt. To change one of the entitlements of mandatory spending. Congress must change the law

Question 4

Discretionary fiscal policy

Answer 4

Policies that involve adjusting gov spending and tax policies to push the economy toward full employment by stimulating economic output or loosening inflation

Question 5

Expansionary fiscal policy

Answer 5

Involves increase in gov spending, increase transfer payments, and/or decrease taxes to increase AD

Question 6

Contractionary fiscal policy

Answer 6

Policies that decrease AD to contact output in economy. Decrease in gov spending, decrease in transfer payments, and/or increase in taxes to fight inflation

Question 7

Why do politicians favour expansionary fiscal policy?

Answer 7

They favour it because it can bring increase in employment even at the cost of higher inflation. They tend to steer away from contractionary f p because it results in unemployment

Question 8

Supply side fiscal policy

Answer 8

Focus on shifting LRAS to the right, expanding the economy without increased inflationary pressures. Unlike policies to increase AD, supply side p take longer to impact the economy. Do not always require tradeoffs between price lvl, output and marginal tax rates

Question 9

How can expanding long run AS occur?

Answer 9

Can occur through higher investment in infrastructure, research development, human capital, tax incentives for business investment and reducing burdensome regulation. Decrease in the amount of regulations should shift LRAS to the right

Question 10

Laffer curve

Answer 10

Shows hypothetical relationship between income tax rates and tax revenues. As tax rates increase from 0, revenues rise, reach s maximum, then decline until revenues reach 0 again at 100% tax rates.

Question 11

What does laffer curve suggest?

Answer 11

It suggests that reducing tax rates could lead to higher revenues if tax rates are high enough

Question 12

What is the major limitation of fiscal policies to influence LRAS?

Answer 12

Take too long to have an impact compared to policies aimed at influencing AD

Question 13

Automatic stabilisers

Answer 13

Tax revenues and transfer payments automatically expand or contract in ways that reduce the intensity of business fluctuations without any overt actions by congress or other policymakers. When the economy is booming, tax revenues automatically rise and unemployment compensations and welfare payments fall, loosening the expansion. When the economy enters recession, tax revenues automatically fall and transfer payments rise, cushioning the decline

Question 14

Information lag

Answer 14

The time it takes to collect, and provide data on the economy

Question 15

Recognition lag

Answer 15

The time required to recognise trends on the data

Question 16

Decision lag

Answer 16

The time it takes for congress and the president to decide on the policy

Question 17

Implementation lag

Answer 17

The time required by congress to pass a law and put it place

Question 18

In what does these lags may result?

Answer 18

Gov policy results in being mistimed

Question 19

Public choice theory

Answer 19

Economic analysis of public and political decision making, looking at issues such as voting, election incentives on politicians, and the influence of special interest groups. Public choice economists argue that deficit spending reduces the perceived cost of current gov operations, and therefore politicians willing to enact expansionary policies that lead to deficit and a higher public debt.

Question 20

Deficit

Answer 20

Amount by which annual gov expenditures exceed tax revenues

Question 21

Surplus

Answer 21

Amount by which annual tax revenues exceed gov expenditures

Question 22

National debt

Answer 22

Total накопления accumulations of past deficit less surpluses. Measured by the total amount of public debt issued by the u.s treasury

Question 23

Public debt

Answer 23

The portion of the national debt that is held by the public, including individuals, companies, and pension funds, along with foreign entities and foreign government. Referred to as net debt held by the public

Question 24

Annually balanced budget

Answer 24

Expenditures and tax revenues would have to be equal each year

Question 25

Cyclically balanced budget

Answer 25

Balancing the budget over the course of the business cycle by restricting spending or raising taxes when the economy is booming and using these surpluses to offset the deficits that occur during recessions

Question 26

Functional finance

Answer 26

An approach that focuses on fostering economic growth and stable prices while keeping the economy as close as possible to full employment

Question 27

What are the approaches to finance the federal gov

Answer 27

Annually balancing budget, balancing the budget over the business cycle, and ignoring the budget deficit and focusing on promoting full employment and stable prices

Question 28

Government budget constraint

Answer 28

The fed gov’ s debt must be financing by selling bonds to the fed reserve (printing money, monetirising the debt), by selling bonds to the public, or by selling gov assets

Question 29

Internally held debt

Answer 29

Public debt owned by domestic banks, corporations, mutual funds, pension plans, and individuals

Question 30

Externally held debt

Answer 30

Public debt held by the foreigners

Question 31

Crowding out effect

Answer 31

When deficit spending requires the gov to borrow, interest rates are given up, reducing consumer spending and business investment

Question 32

Fiscal sustainability

Answer 32

A measure of the present value of all projected future revenues compared to the present value of projected future expanding

Question 33

8% of the federal budget accounts for

Answer 33

Interest payments on the debt account for 8% of the federal budget

Question 34

The public debt is consisted of

Answer 34

60% is held by the public is held by domestic individuals and institutions. 40% is held by foreigners

Question 35

Why do foreign gov purchases US debt?

Answer 35

To keep their currencies from rising relative to the u.s dollar