Fiscal policy is likely to be more effective: when there are less offsetting red
ID: 1187528 • Letter: F
Question
Fiscal policy is likely to be more effective:
when there are less offsetting reductions in private sector spending.
during abnormal times as opposed to more normal times.
when government borrowing does not increase interest rates substantially.
all of the above situations.
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In the extreme case of direct expenditure offsets the:
increase in government expenditures are smaller than the decrease in consumption
increase in government expenditures are matched by a decrease in consumption
increase in government expenditures are larger than the decrease in consumption
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a recessionary gap.
deflation.
an inflationary gap.
crowding out.
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Fiscal policy refers to:
discretionary changes in government spending and taxes.
changes in the money supply.
changes in the interest rate.
changes in the amount of physical capital in the economy
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When an economist is using the term "discretionary" as in discretionary spending, they are referring to the:
amount of government spending decided upon by Congress or the government's ruling body.
consumption of households.
money a government must spend on legislated items, such as Social Security payments.
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The government just passed a new tax bill that will be applied to the economy next year. Most people will not immediately feel the impact of this new tax bill and not adjust their W-2 tax forms. The impact of the new tax bill won't become apparent to them until the following April when their tax bills are due. This problem is referred to as the:
effect time lag, and it makes it difficult to use automatic stabilizers to close a recessionary gap.
recognition time lag, and it makes it difficult to use discretionary fiscal policy to close a recessionary gap.
effect time lag, and it makes it difficult to use discretionary fiscal policy to close a recessionary gap.
recognition time lag, and it makes it difficult to use automatic stabilizers to close a recessionary gap.
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How do automatic stabilizers work?
When an increase in national income occurs there will be an increase in income collections and an increase in unemployment compensation and welfare payments muting the increase in planned expenditures that would have otherwise resulted.
When an increase in national income occurs there will be a reduction in income collections and a decrease in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted.
When a decline in national income occurs there will be an increase in income tax collections and an increase in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted.
When a decline in national income occurs there will be a reduction in income tax collections and an increase in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted.
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Expansionary fiscal policy that creates a budget deficit can lead to crowding out. This crowding out effect is exhibited by:
increased taxes and increased investment.
increased government expenditures and decreased investment.
decreased government expenditures and decreased investment.
increased government expenditures and decreased interest rates.
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Increased government spending crowds out investment due to:
stricter government regulations.
higher interest rates.
an increased money supply.
the existence of interest rate floors.
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Automatic stabilizers:
are a component of discretionary fiscal policy.
require new legislation to be implemented.
cause changes in the economy without the action of Congress and the President.
include the progressive income tax but not unemployment compensation.
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The purpose of automatic stabilizers is to:
act as a safety measure preventing the government from using fiscal policy.
lessen the impact of unemployment in a recession and slowdown inflation during an expansion.
make sure people have a living wage.
stabilize tax revenue and government expenditures.
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There are several time lags involved when fiscal policy is applied. The first hurdle faced by a government IS:
the time it takes Congress to decide upon the type of fiscal policy to be used.
the time it takes Congress to pass the bill to enact the fiscal policy.
recognizing that the economy is facing a problem that could be solved by applying fiscal policy.
the time it takes for the policy to have an effect on the economy.
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Fiscal policy is likely to be least effective:
when it is permanent.
during normal economic times.
during wartime.
when it is automatic.
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when there are less offsetting reductions in private sector spending.
during abnormal times as opposed to more normal times.
when government borrowing does not increase interest rates substantially.
all of the above situations.
Explanation / Answer
1)during abnormal times as opposed to more normal times.
2)increase in government expenditures are matched by a decrease in consumption
3)recessionary gap
4)
discretionary changes in government spending and taxes
5)amount of government spending decided upon by Congress or the government's ruling body.
6)recognition time lag, and it makes it difficult to use discretionary fiscal policy to close a recessionary gap.
7)When an increase in national income occurs there will be a reduction in income collections and a decrease in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted.
8)decreased government expenditures and decreased investment.
9)higher interest rates
10)cause changes in the economy without the action of Congress and the President
11)essen the impact of unemployment in a recession and slowdown inflation during an expansion
12)recognizing that the economy is facing a problem that could be solved by applying fiscal policy
13)during wartime.
14)a reduction in the federal funds rate
discretionary changes in government spending and taxes
5)amount of government spending decided upon by Congress or the government's ruling body.
6)recognition time lag, and it makes it difficult to use discretionary fiscal policy to close a recessionary gap.
7)When an increase in national income occurs there will be a reduction in income collections and a decrease in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted.
8)decreased government expenditures and decreased investment.
9)higher interest rates
10)cause changes in the economy without the action of Congress and the President
11)essen the impact of unemployment in a recession and slowdown inflation during an expansion
12)recognizing that the economy is facing a problem that could be solved by applying fiscal policy
13)during wartime.
14)a reduction in the federal funds rate
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