Minnesota State University, Mankato
Popular in principles of Macroeconomics
Popular in Department
This 3 page Class Notes was uploaded by Beta A on Monday October 3, 2016. The Class Notes belongs to Econ 201 at Minnesota State University - Mankato taught by in Fall 2016. Since its upload, it has received 9 views.
Reviews for Econ 201
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 10/03/16
Economics 201 Macroeconomics Simonson Chapters 10, 11, and 12 Quiz Topics 1. Please explain how government spending, transfer payments, and taxes would be used to conduct contractionary and expansionary fiscal policy. (How would discretionary policy be used to correct a period of recession or inflation? How is expansionary/contractionary policy attempting to influence aggregate demand?) Contractionary Reducing government spending Reducing transfer payment Rasing taxes reduces aggregate demand Reduced inflation ExpansionaryIncreasing government spending Increase transfer payment Decrease tax Increases aggregate demand Increase inflation 2. Please explain what is meant by a transfer payment. Transfer payments are money payments directly paid to individuals. These include payments for such items as Social Security, unemployment compensation, and welfare. In large measure, they represent our social safety net. We will ignore them as part of the discretionary fiscal policy, because most are paid as a matter of law, but we will see later in the chapter that they are very important as a way of stabilizing the economy 3. Please explain what is meant by discretionary fiscal spending (provide examples). discretionary spending The part of the budget that works its way through the appropriations process of Congress each year and includes such programs as national defense, transportation, science, environment, and income security. Some examples of the use of discretionary fiscal policy include tax cuts enacted during the Kennedy, Reagan, and George W. Bush administrations. These tax cuts were designed to expand the economy under the belief that people would spend their tax savings, both in the near term and the long run—they were meant to influence both aggregate demand and aggregate supply. Tax increases were enacted under the George H. Bush and Clinton administrations in the interest of reducing the government deficit and interest rates. The Roosevelt administration used increased government spending, although small amounts by today’s standards, to mitigate the impact of the Great Depression. 4. What is the main idea of supplyside economics? Policies that focus on shifting the longrun aggregate supply curve to the right, expanding the economy without increasing inflationary pressures. Unlike policies to increase aggregate demand, supplyside policies take longer to have an impact on the economy. 5. What is the main implication of the Laffer curve? Laffer curve Shows a hypothetical relationship between income tax rates and tax revenues. As tax rates rise from zero, revenues rise, reach a maximum, then decline until revenues reach zero again at a 100% tax rate. 6. What three main groups must agree in order to implement fiscal policy? Three disparate entities—the Senate, House, and the president—must collectively agree on specific spending and tax policies. Ideally, these decisions are made in the open with the public fully informed. The complexities of the budgeting process and its openness (not a bad thing in itself) give rise to several inherent difficulties 7. Please explain what is meant by Automatic Stabilizers. (Give examples of automatic stabilizers). automatic stabilizers Tax revenues and transfer payments automatically expand or contract in ways that reduce the intensity of business fluctuations without any overt action by Congress or other policymakers. Example 10.3 8. Please explain what is meant by a Cyclically Balanced Budget. (What should be done with government spending and taxes when the economy is growing/declining?) cyclically balanced budget Balancing the budget over the course of the business cycle by restricting spending or raising taxes when the economy is booming and using these surpluses to offset the deficits that occur during recessions. 9. Please explain what is meant by an Annually Balanced Budget. What difficulty may it pose for efforts by the government to counter the business cycle? annually balanced budget Federal expenditures and taxes would have to be equal each year. Most economists, however, believe such rules are counterproductive. For example, during times of recession, tax revenues tend to fall due to lower incomes and higher unemployment. To offset these lost revenues, an annually balanced budget would require deep spending cuts or tax hikes (in other words, contractionary policy) during a time when expansionary policies are needed. Many economists believe that balanced budget rules of the early 1930s turned what probably would have been a modest recession into the global Depression 10. Please explain what is meant by Functional Finance. functional finance Essentially ignores the impact of the budget on the business cycle and focuses on fostering economic growth and stable prices, while keeping the economy as close as possible to full employment. 11. Please explain what is meant by a budget deficit versus a budget surplus. What is the public debt? (How is it calculated?) 12. Please explain what is meant by the “Crowding Out Effect.” What is the implication for the effectiveness of fiscal policy? (How does government spending affect interest rates, consumption, and investment?) 13. What is Money? What are the primary functions of money? What is meant by “Liquidity?” 14. Please explain what is meant by a Fractional Reserve Banking System. 15. Please explain what is meant by the Reserve Requirement. (What is the requirement placed upon banks?) 16. What is the Money Multiplier? What is the relationship between the reserve requirement and the money multiplier? How is the money multiplier calculated? 17. For any given new deposit in a bank, how does the reserve requirement (and the money multiplier) affect the money supply? 18. What are the basic goals (objectives) of the Federal Reserve System? 19. Please explain each of the following policy tools of the Federal Reserve: Reserve Requirement, Discount Rate, Open Market Operations. 20. Assume that the Federal Reserve desired to use each of the policy tools (above) to increase or decrease the money supply. How should each of the policy tools be used? (Contractionary Monetary Policy is used to decrease the money supply. Expansionary Monetary Policy is used to increase the money supply.) 21. What is the main policy tool of the Federal Reserve? Which policy tool is rarely used?
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'