Built-in Stability a.Explain the difference between discretionary and non-discretionary fiscal policy, b.Explain the key relationships that supports the built-in stabilizer, c.Explain thoroughly how it works to reduce inflation d.Explain thoroughly how it works to reduce recession e.Explain why the presence of the built-instabilizer is important to managing the macro economy.

Built-in Stability a.Explain the difference between discretionary and non-discretionary fiscal policy, b.Explain the key relationships that supports the built-in stabilizer, c.Explain thoroughly how it works to reduce inflation d.Explain thoroughly how it works to reduce recession e.Explain why the presence of the built-instabilizer is important to managing the macro economy.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 4P

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Question

Built-in Stability

a.Explain the difference between discretionary and non-discretionary fiscal policy,

b.Explain the key relationships that supports the built-in stabilizer,

c.Explain thoroughly how it works to reduce inflation

d.Explain thoroughly how it works to reduce recession

e.Explain why the presence of the built-instabilizer is important to managing the macro economy.

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A. Differentiate between discretionary fiscal policy and nondiscretionary or built-in stabilization policy. B. When in a recession a government has the option to increase government spending or decrease taxes to stimulate the economy. Discuss which piece of GDP is being targeted when each is used.
Question 38
Our macroeconomic model suggests that after a decline in aggregate demand like that of 2007, the economy will self correct and return to a position where the GDP gap is zero. If this is correct, why should the government ever intervene with fiscal policy? a. It take many years for the GDP gap to close on its own. b. This is part of the government's "mission statement" as given in the Constitution. c. Fiscal policy is profitable for banks. d. People do not trust the theory behind the model.
Fiscal Policy: End of Chapter Problem Examine what the "three difficulties with using fiscal policy" look like in real life. Categorize cach of the following three stories as either crowding out, magnitude, or a matter of timing. a. During a recession, the State of New York hires 1,000 new trash collectors. The state legislature in Albany takes six months to pass a law to hire the new trash collectors. Then, because of government rules and paperwork, the government actually hires the workers 18 months after the recession has begun. The difficulty is____________. b. During a recession, the State of New York hires 1,000 new trash collectors. Five hundred of the new trash collectors, however, were just people who quit their jobs as restaurant employees to take the better-paying trash collector jobs. The difficulty is_____________. c. During a recession, the State of New York hires 1,000 new trash collectors. However, during the course of the recession, 300,000 additional people…
Select the correct option and explain why it is correct : a) Critics of discretionary fiscal policy argue that discretionary policy : 1) has uncertain effects 2) has an impact lag that is too short. 3) raises more inflation than policy rules. 4) has long recognition and implementation lags. b) The largest share of expenditures by state and local governemtnn is for : 1) Transfer payment 2) national defense 3) law enforcement 4) purchase of goods and services c) Countercyclical fiscal policy is designed to : 1) shift the inflation adjustment line so that real GDP is equal to potential GDP 2) reduce unemployment further when it is already at a low level 3) increase potential GDP 4) shift the aggregate demand curve so that real GDP equals potential GDP. d) Which of the following types of taxes provide the most revenue for the federal governemtn 1) Payroll taxes 2) income taxes 3) Sales taxes 4) corporate taxes
One problem with fiscal policy is that it can lead to crowding out. Crowding out is defined as: Select one: A. That part of public expenditure financed from borrowing B. Increased taxes pushing up interest rates C. Increased demand for money pushing up interest rates resulting in lower C and I D. Increased public spending feeding through to adverse exchange rate movements
Automatic fiscal stabilizers the impact of demand or supply shocks on the economy since during booms and government's net tax revenues during recessions. A. magnify; increase; decrease B. magnify; decrease; increase C. does not affect; are constant; are constant D. dampen; increase; decrease E. dampen; decrease; increase
Q) In case of DEFLATION, mention that which particular type of fiscal policy will be used and why and either each fiscal policy tool will be increased or decreased. Explanation and reasoning for each tool and its working separately is must.
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