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26 Cards in this Set
- Front
- Back
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Discretionary Spending
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The part of the budget that works its way through the appropriations process of Congress each year and includes such programs such as national defense, transportation, science, environment, and income security.
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Mandatory Spending
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Spending authorized by permanent laws that does not go through the same appropriate process as discretionary spending. Mandatory spending includes such programs as social security, medicare, and interest on the national debt.
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Information Lag
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The time policymakers must wait for economic data to be collected, processed, and reported. Most macroeconomic data are not available until at least one quarter after the fact.
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Discretionary Fiscal Policy
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involves adjusting government spending and tax policies with the express short-run goal of moving the economy toward full employment, expanding economic growth, or controlling inflation.
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Expansionary Fiscal Policy
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involves increasing government spending, increasing transfer payments, or decreasing taxes to increase aggregate demand to expand output and the economy.
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Contractionary Fiscal Policy
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involves increasing withdrawls from the economy by reducing government spending, transfer payment, or raising taxes to decrease aggregate demand to contract output and the economy.
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Supply Side Fiscal Policies
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Policies that focus on shifting the long-run aggregate supply curve to the right, expanding the economy with out increasing inflationary pressures.Unlike policies to increase aggregate demand, supply side policies take longer to have an impact on the economy.
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Laffer Curve
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Hypothectical tax revenues at various income tax rates. If tax rates are zero, tax revenues will also be zero; if rates are 100% revenues will also be zero. As tax rates rise from zero, revenues rise reach a maximum, and then decline.
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Automatic Stabliziers
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Tax revenues and transfer payments automatically expand or constract in ways that reduce the intensity of business fluctuations without any overt action by Congress or other policy makers.
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Recognition Lag
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The time it takes for policy makers to confirm that the economy is trending in or out of a recession. Short-term variation in key economic indicators are typical and sometimes represent nothing more than randomness in the data.
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Decision Lag
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The time it takes Congress and the administration to decide on a policy once a problem is recognized.
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Implemention Lag
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The time required to turn fiscal policy into law and eventually have an impact on the economy.
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Crowding-out effect
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Arises from deficit spending requiring the government to borrow, thus driving up interest rates and reducing consumer spending and business investment.
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Which of the following was the largest source of Federal Government revenue in 2009?
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Individual Income Taxes
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Which of the following is an example of supply-side fiscal policy?
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More rapid depreciation schedules for plant and equipment.
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It can often take over a year before researchers and policymakers are to determine that an economy is moving out of a recession. That year is known as
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Recognition Lag
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Approximately when did mandatory spending increase above discretionary spending?
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1975
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Modern growth theory suggests that government should focus on _____________ in order to create economic growth.
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Investments in Human Capital
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After the elections of 2010, the U.S Senate remained controlled by the Democrats, but the majority of the House of Representatives became Republican. You might expect that this would increase the ______ lag associated with fiscal policy.
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Decision
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Which of the following is NOT included in mandatory spending?
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Education
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Which is one of the weaknesses of fiscal policy directed at the supply side of the economy?
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It can take a long time to have an impact.
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Which of the following is NOT included in mandatory spending?
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national defense
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Which of the following is an example of a supply-side fiscal policy
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Investment tax credits
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Due to the progressivity of the income tax, disposable income falls more slowly than _______________.
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aggregate income
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According to the Laffer Curve, an increase in tax rates will lead to
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either an increase, decrease, or no change in tax revenue.
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When the economy is in recession ______________ fall faster than ________ because of the progressivity of the income tax.
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Tax Revenues and Income
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