Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
The Nickling’s Guide to Fiscal Policy (Day One) By: Nicholsons in Black Stabilization Policy Stabilization policy is a government policy designed to lessen the effects of the ______________. It can be either ____________ or _______________. o o Expansionary policy attempts to __________ unemployment and stimulate output. Contractionary policy attempts to ___________ prices and reduce output. Stabilization policy can take the form of either _____________ or _________________. o o o o Fiscal policy uses _______________ and ____________________. Expansionary fiscal policy involves ____________ government purchases and/or ______________ taxes to shift AD rightward. Contractionary fiscal policy involves __________ government purchases and/or _______________ taxes to shift AD leftward. Monetary policy uses interest rates and the money supply. Discretionary policy is ______________ government intervention in the economy. Automatic stabilizers are built-in measures such as _________ and _____________________ to lessen the effects of the business cycle. Benefits and Drawbacks to Fiscal Policy Fiscal policy has two main benefits: o It can be focused on particular _____________. o It has a relatively ___________ impact on spending. Fiscal policy has two main drawbacks o It is subject to delays: ____________, ____________, _____________. It is closely related to public ____________. Nickling’s Road to Success in Understanding Fiscal Policies: In the following cases, would policy-makers raise to reduce government purchases? Why? o Real output is less than potential level. ________________ o Unemployment is below its natural rate. ________________ o Real output equals its potential level and unemployment is at its natural rate. ________________ Explain how automatic stabilizers work during the following periods. o The economy is experiencing a recession, with shrinking incomes and spending. ________________ o The economy is in an expansionary phase, with rising incomes and spending. ________________ 1 The Nickling’s Guide to Fiscal Policy (Day One) By: Nicholsons in Black The Multiplier Effect The ________________ is the magnified impact of a spending change on AD. o o o o o An initial spending change produces ___________ and part of this new income becomes new spending. This process is repeated with each spending round _________ than the last. Each new spending round is determined by the ______________ ______________________ (MPC) which measures the effect of an income change on domestic consumption. Each new spending round is also determined by the _________ ______________________ (MPW) which measures the effect of an income change on withdrawals. MPC and MPW always summing to one. The spending multiplier: The value by which an initial spending change is __________ to give the total shift in the AD curve. Equals (_____/MPW). The actual change in equilibrium output is _______ than the change in AD found using the spending multiplier because of __________________. Nickling’s Road to Success in Understanding Fiscal Policies: A. If an economy is initially in equilibrium and injections rise by $1 million, then by how much will withdrawals have to rise in order to bring injections and withdrawals back in balance? ________________________________________________________________ B. If the economy’s MPW is 0.67 then by how much will incomes and output have to rise to create the required additional expenditures? ________________________________________________________________ C. Explain how your answer to part B. is based on the formula for the spending multiplier. ________________________________________________________________ For each of the following cases, calculate the spending multiplier and state the direction and size of the shift in the AD curve. o Government purchases fall by $10 billion in an economy with an MPW of 0.60. _________________ o A tax cut causes an initial $25 billion rise in spending in an economy with an MPW of 0.80. _________________ o Government purchases rise by $15 billion in an economy with an MPC of 0.25. _________________ o A $30 billion tax rise occurs in an economy with an MPC of 0.45. _________________ 2 The Nickling’s Guide to Fiscal Policy (Day One) By: Nicholsons in Black 3