Question 1

An economy is experiencing a recession and policy makers are considering using discretionary fiscal policy to eliminate the recessionary gap.What are the four limitations that policymakers face when using discretionary fiscal policy?
 Briefly discuss each.

Accepted Answer

The answer of An economy is experiencing a recession and...

Question 2

Explain how tax revenue can be both an automatic fiscal policy and a discretionary fiscal policy.

Accepted Answer

The answer of Explain how tax revenue can be both...

Question 3

Explain the difference between discretionary and automatic fiscal policy.Provide examples of each.

Accepted Answer

The answer of Explain the difference between discretionary and automatic...

Question 4

What are automatic stabilizers?
 How do they help stabilize real GDP?

Accepted Answer

The answer of What are automatic stabilizers?
 How do they...

Question 5

Why is increased spending on NASA considered a discretionary fiscal policy rather than an automatic fiscal policy?

Accepted Answer

The answer of Why is increased spending on NASA considered...

Question 6

Explain what fiscal policy actions could eliminate an inflationary gap.

Accepted Answer

The answer of Explain what fiscal policy actions could eliminate...

Question 7

"Discretionary fiscal policy is a fiscal action initiated by an act of the Federal Reserve, while automatic fiscal policy is a fiscal action induced by the state of the economy." Is the previous statement correct or incorrect?
 Explain your answer.

Accepted Answer

The answer of "Discretionary fiscal policy is a fiscal action...

Question 8

Suppose there is a $200 billion recessionary gap.If there are no taxes or imports, to restore the economy back to potential GDP, how much should government expenditure be changed if the marginal propensity to consume is 0.75?
 Does government expenditure need to be increased or decreased?

Accepted Answer

The answer of Suppose there is a $200 billion recessionary...

Question 9

What are automatic stabilizers?
 How do they affect the budget deficit and/or budget surplus during a recession and during an expansion?

Accepted Answer

The answer of What are automatic stabilizers?
 How do they...

Question 10

What is the effect on aggregate demand and the AD curve from either an increase in government expenditure or a cut in taxes?

Accepted Answer

The answer of What is the effect on aggregate demand...

Question 11

Which has a larger effect on aggregate demand: an increase in government expenditure or an equal sized decrease in taxes?
 Explain your answer.

Accepted Answer

The answer of Which has a larger effect on aggregate...

Question 12

What are law-making lags?
 What effect do they have on the use of discretionary fiscal policy?

Accepted Answer

The answer of What are law-making lags?
 What effect do...

Question 13

Explain four reasons why it is difficult to use discretionary fiscal policy to eliminate a deflationary or inflationary gap.

Accepted Answer

The answer of Explain four reasons why it is difficult...

Question 14

To eliminate a recessionary gap, what fiscal policy should the government pursue?

Accepted Answer

The answer of To eliminate a recessionary gap, what fiscal...

Question 15

Describe the difference between discretionary and automatic fiscal policy.

Accepted Answer

The answer of Describe the difference between discretionary and automatic...

Question 16

"As the saying goes, the only sure things in life are death and taxes.This saying points out the result that everything having to do with taxes is an automatic fiscal policy." Is the preceding analysis correct or incorrect?
 Explain your answer.

Accepted Answer

The answer of "As the saying goes, the only sure...

Question 17

Define the balanced budget multiplier and explain how it works.In your answer, ignore any supply-side effects.

Accepted Answer

The answer of Define the balanced budget multiplier and explain...

Question 18

-Does the figure above illustrate a recessionary or an inflationary gap?
 What do potential GDP and real GDP equal?
 What is an appropriate fiscal policy to restore real GDP to potential real GDP?

Accepted Answer

The answer of 
-Does the figure above illustrate a recessionary...

Question 19

"Fiscal policy initiated by an act of Congress that changes government spending or taxes is called discretionary fiscal policy." Is the previous statement correct or incorrect?

Accepted Answer

The answer of "Fiscal policy initiated by an act of...

Question 20

If the government increases expenditure by $40 billion and increases tax receipts by $40 billion, what is the impact on aggregate demand?
 Explain your answer.

Accepted Answer

The answer of If the government increases expenditure by $40...

Quiz 16: Fiscal Policy

An economy is experiencing a recession and policy makers are considering using discretionary fiscal policy to eliminate the recessionary gap.What are the four limitations that policymakers face when using discretionary fiscal policy? Briefly discuss each.

Explain how tax revenue can be both an automatic fiscal policy and a discretionary fiscal policy.

Explain the difference between discretionary and automatic fiscal policy.Provide examples of each.

What are automatic stabilizers? How do they help stabilize real GDP?

Why is increased spending on NASA considered a discretionary fiscal policy rather than an automatic fiscal policy?

Explain what fiscal policy actions could eliminate an inflationary gap.

"Discretionary fiscal policy is a fiscal action initiated by an act of the Federal Reserve, while automatic fiscal policy is a fiscal action induced by the state of the economy." Is the previous statement correct or incorrect? Explain your answer.

Suppose there is a $200 billion recessionary gap.If there are no taxes or imports, to restore the economy back to potential GDP, how much should government expenditure be changed if the marginal propensity to consume is 0.75? Does government expenditure need to be increased or decreased?

What are automatic stabilizers? How do they affect the budget deficit and/or budget surplus during a recession and during an expansion?

What is the effect on aggregate demand and the AD curve from either an increase in government expenditure or a cut in taxes?

Which has a larger effect on aggregate demand: an increase in government expenditure or an equal sized decrease in taxes? Explain your answer.

What are law-making lags? What effect do they have on the use of discretionary fiscal policy?

Explain four reasons why it is difficult to use discretionary fiscal policy to eliminate a deflationary or inflationary gap.

To eliminate a recessionary gap, what fiscal policy should the government pursue?

Describe the difference between discretionary and automatic fiscal policy.

"As the saying goes, the only sure things in life are death and taxes.This saying points out the result that everything having to do with taxes is an automatic fiscal policy." Is the preceding analysis correct or incorrect? Explain your answer.

Define the balanced budget multiplier and explain how it works.In your answer, ignore any supply-side effects.

-Does the figure above illustrate a recessionary or an inflationary gap? What do potential GDP and real GDP equal? What is an appropriate fiscal policy to restore real GDP to potential real GDP?

"Fiscal policy initiated by an act of Congress that changes government spending or taxes is called discretionary fiscal policy." Is the previous statement correct or incorrect?

If the government increases expenditure by $40 billion and increases tax receipts by $40 billion, what is the impact on aggregate demand? Explain your answer.