Chapter 11 Flashcards
(19 cards)
What is the purpose of fiscal policy
- Achieve full employment
- Control inflation
- Encourage economic growth
10 components that make up the leading economic indicators
1Average workweek 2Initial claims for unemployment insurance 3 New orders for consumer goods 4 vendor performance 5 New orders for capital goods 6 building permits for houses 7 stock prices 8 money supply 9 interest rate spread 10 consumer expectation
When and how did fiscal policy emerge
Out of the depression of the 1930s and the rise of keyhesian in economics that led to macro economics theory
A landmark bill in American economic legislation because it commits the federal government to take action through monetary and fiscal policy
Employment act of 1946
What are the governments fiscal policy options for ending a recession
1 decrease government spending
2 raise taxes
3 combination of one and two
What are the governments fiscal policy options for ending severe demand pull inflation
1 stop the rise of price
2 reduce government spending
3 combination of both
What fiscal policy options would a conservative economist favor
The advocate text cuts during recessions and cuts in government spending during times of demand pull inflation
What fiscal policy options and what a liberal economist favor
They usually recommend that government spending be increased during recessions
How do built in stabilizers work
It is anything that increases the government budget deficit during an expansion without requiring explicit action by policymakers
Average tax rate rises with GDP
Progressive
Average tax rate remains constant is GDP rises
Proportional
Average tax rate falls as GDP rises
Regressive
What is full employment budget
A comparison of government expenditures and tax revenues that would occur if the economy is at full employment
What is the significance of a full employment budget
It removes budget surpluses and deficits that happen because of changes in GDP
Why may Full employment budget differ from the actual budget
Because the economy may not be fully employed
Seven problems that may be encountered when governments enact fiscal policy
Problems of timing Political considerations Future policy reversals Offsetting state and local finance Consumption smoothing Reversals of policy Crowding out effect
Politicians make fiscal policy prior to elections to get re-elected
Political business cycle
Government spending and borrowing/crowds private investor spending
Government spending reduced/human capital goes up
Crowding out effect
Main type of tax in this country
Progressive tax
