Chapter 29 Fiscal Policy Flashcards
Define discretionary fiscal policy
The deliberate use of government spending or taxation to manage aggregate demand.
What are government programs that are intended to protect families against economic hardship called?
Social insurance
What are three examples of social insurance?
Social Security, Medicare, and Medicaid
What does expansionary fiscal policy consist of?
An increase in government purchases of goods and services
A cut in taxes
An increase in government transfers
What does contractionary fiscal policy consist of?
A reduction in government purchases of goods and services
An increase in taxes
A reduction in government transfers
Why do most economists caution against an overly active economic stabilization policy?
Fiscal policy action is usually lagged and in certain instances it make things worse. For example a recessionary gap could correct itself and by the time the government action takes effect it could create an inflationary gap.
How does the multiplier effect of changes in taxes or government transfers differ from the general multiplier effect?
Changes in taxes and government transfers do not impact GDP directly, they impact disposable income so their general economic impact is less.
What is an example of an automatic stabilizer?
Most taxes that increase with increases in GDP such as income tax or corporate taxes.
What is a fiscal year?
It starts in October 1 and goes to September 30 and is labeled according to the calendar year in which it ends. It is the year in which the US government totals it’s budget.
What is an estimate of what the budget balance would be if real GDP were exactly equal to potential output?
Cyclically adjusted budget balance.
What is public debt?
Government debt held by individuals and institutions outside the government.
What are the results of persistent budget deficits?
Crowding out and future financial pressure on budgets.
What is an imlicit liability?
Debts no calculated as public debt because the government has made promises to pay. Examples include social security, medcare, and medicaid.
