In the United States, the president influences the process, but Congress must author and pass the bills. B. PDF ECO 212 Macroeconomics Yellow Pages ANSWERS Unit 3 Answer to: Discretionary fiscal policy is so named because it By signing up, you'll get thousands of step-by-step solutions to your homework. C. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. Macro Chap 9,12,13 Flashcards - Cram.com Ii. The authors measure these effects in the Australian context and consider the implications of their empirical findings for the conduct of macroeconomic policy for a small open economy. Some tax and expenditure programs change automatically with the level of economic activity. incentive to work, and so reduce aggregate supply. 1 An economy that grows more than 3% creates four negative consequences. Budgets occur annually. in recent years. It takes some time for policy makers to realize that a recessionary or an inflationary gap exists—the recognition lag.Recognition lags stem largely from the difficulty of collecting economic data in a timely and accurate fashion. D) is invoked secretly by the Council of Economic Advisers. When so much of the budget goes toward fulfilling mandatory programs, the government has less to spend on discretionary programs. Your choices for each situation must be consistent — that is, you should choose either an expansionary or contractionary fiscal policy. A summary of alternative views presents the central ideas and policy implications of four main macroeconomic theories: Mainstream macroeconomics, monetarism, rational expectations theory and supply side economics. When the government runs an expansionary fiscal policy, it adds to its stock of debt. Discretionary fiscal policy refers to the deliberate manipulation of taxes and government spending by Congress to alter real output and employment (thus impacting economic growth) and to control inflation. Above all the so called periphery countries (Greece, Ireland, C. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. Looking through this lens, economists observe the financial decisions that manipulate an economy's elements, such as interest rates, inflation, deflation, and stagflation. Fiscal Policy Questions and Answers. The result is that modern depictions of the structural deficit systematically understate the degree of discretionary contraction coming from fiscal policy. d. still constitute only about 1% of the GDP. The key link between the so-called twin deficits involves The three tools of Fiscal policy are… (list 3 below) a. b. c. 3. B) occurs automatically as the nation's level of GDP changes. Become a member and unlock. Fiscal Policy and Interest Rates. The second result concerns the role of fiscal rules, such as limits on the deficit, borrowing or spending, and so-called fiscal responsibility laws. John Keynes suggested that government should… (finish the sentence) 2. Evaluation / Criticism of Fiscal Policy. A contractionary fiscal policy seeks to reduce aggregate demand to AD 2 and close the gap. C. is undertaken at the option of the nation's central bank. First, the rules may simply not be enforced and therefore impose no limits on fiscal policy choices. Discretionary fiscal policy is subject to the same lags that we discussed for monetary policy. B. necessarily reduces the size of government. Macroeconomics is a sub-section of economics which focuses on the behavior of an entire economy, and the actors that exist at that level, such as the Federal Reserve. B. occurs automatically as the nation's level of GDP changes. Like monetary policy, it can be used in an effort to close a recessionary or an inflationary gap. D. is invoked secretly by the Council of Economic Advisers. This is not the place to discuss the potential benefits of discretionary countercyclical fiscal policy actions, namely increases in discretionary spending during recessions and reductions during booms. Treasurer Keating (March 1983 to June 1991) was reluctant to embrace a medium-term framing of fiscal policy beyond the so-called trilogy, which operated for a couple of years in the mid 1980s, yet his powerful articulation of the twin-deficits paved the B. occurs automatically as the nation's level of GDP changes. C. is undertaken at the option of the nation's central bank. Expansionary fiscal policy is so named because it involves an expansion of the nation's money supply. The budget balance is a. Discretionary fiscal policy is so named because it: a. is undertaken at the option of the nation's central bank.  Blair Comley, Stephen Anthony and Ben Ferguson* This article is devoted to examining the appropriate use of fiscal policy in the presence of private savings and interest rate offsets. The purpose of contractionary fiscal policy is to slow growth to a healthy economic level. Higher prices quickly gobble up savings and destroy . The purpose of contractionary fiscal policy is to slow growth to a healthy economic level. That's when prices rise too fast in clothing, food, and other necessities. Fiscal policy is used in conjunction with the monetary policies of the Federal Reserve (the Fed), which uses the supply of money and interest rates to influence inflation and lending. B)occurs automatically as the nation's level of GDP changes. Discretionary fiscal policy is any action that is taken by the government that deviates from its regular policies. zero, the government has a balanced budget. is invoked secretly by the Council of Economic Advisers. 7. D. none of the above. The objectives of fiscal and monetary policy are to control the expansion and contraction of the economy. In addition, all the following terms are synonyms: (exogenous) fiscal shock, fiscal impulse, and discretionary change in fiscal policy. Federal fiscal policies include discretionary fiscal policy, when the government passes a new law that explicitly changes tax or spending levels.The stimulus package of 2009 is an example. C. involves specific. For instance, when the UK government cut the VAT in 2009, this was intended to produce a boost in spending. Fiscal Policy explained . The economy can be in one . manipulation of government spending and taxes to change aggregate demand/aggregate expenditures in order to stabilize domestic output, employment, and the price level. 3. They are called discretionary. Access the answers to hundreds of Fiscal policy questions that are explained in a way that's easy for you to understand. c. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. business cycle is different depending on the state of the economy: fiscal policy is "acyclical" during bad times, while it is largely procyclical during good times. Discretionary fiscal policy is so named because it A. occurs automatically as the nation's level of GDP changes. B) occurs automatically as the nation's level of GDP changes. E. is invoked secretly by the Council of Economic Advisers. If the fiscal balance is in deficit when computed at the "full employment" or potential output level, then we call this a structural deficit and it means that the overall impact of discretionary fiscal policy is expansionary irrespective of what the actual fiscal outcome is presently. B)occurs automatically as the nation's level of GDP changes. Learn more about fiscal policy in this article. At a given level of GDP, government expenditures or taxes will be different from what they were before. A discretionary fiscal policy refers to the deliberate changes in government spending and taxes in order to stabilize the economy; for example, the government decides to increase its capital expenditure on road infrastructure. monetary policy is undertaken by the Federal Reserve Board (often called the "fed"). Now we shall look at how specific fiscal policy options work. So just because the fiscal balance goes into deficit doesn't allow us to conclude that the Government has suddenly become of an expansionary mind. A key indicator of the statistical approach is the so-called fiscal semi-elasticity, which measures by how The word "discretionary" means that the policy changes are at the discretion or option of the Federal government. So the data provided by the question could indicate a more expansionary fiscal intent from government but it could also indicate a large automatic stabiliser (cyclical) component. (See . B. occurs automatically as the nation's level of GDP changes. Iii. Actual federal budgets are not an accurate measure of discretionary fiscal policy because . Discretionary fiscal policy is so named because it: A. is undertaken at the option of the nation's central bank. The objectives of fiscal and monetary policy are to control the expansion and contraction of the economy. Expansionary fiscal policy is when the government expands the money supply in the economy using budgetary tools to either increase spending or cut taxes—both of which provide consumers and businesses with more money to spend. However, over the past 2½ years it has become unusually contractionary as a result of several deficit reduction measures passed by Congress. b. taxes to account for externalities and control pollution. For unlimited access to Homework Help, a Homework+ subscription is required. Fill in the spaces as follows: In other words, the presence of automatic stabilisers make it hard to discern whether the fiscal policy stance (chosen by the government) is contractionary or expansionary at any particular point . Fiscal restriction was particularly strong in the Euro area because of the strict fiscal framework of the Stability and Growth Pact (SGP) and the additional policy reactions after the onset of the euro crisis. Fiscal policy affects supply side policy. Discretionary fiscal policy is so named because it A)is undertaken at the order of the nation's central bank. imprecise design, implementation lags, objectives unrelated to stabilisation) and should . the direct effect of fiscal measures on GDP, because of the two-way relationships between these variables. * 40. See full answer below. asked Aug 21 in Other by gaurav96 Expert (68.9k points) Spending and taxes typically react automatically to the business cycle through so-called "automatic stabilizers." They also respond to the cycle in a discretionary In theory, fiscal policy can be used to prevent inflation and avoid recession. Chapter 14 Fiscal policy. B. occurs automatically as the nation's level of GDP changes. Discretionary fiscal policy refers to government policy that alters government spending or taxes. Definition: discretionary fiscal policy Deliberate changes in taxes (tax rates) and government spending by Congress to promote full-employment, price stability, and economic growth. B. is invoked secretly by the Council of Economic Advisers. Expansionary fiscal policy is so named because it? discretionary fiscal policy is so named because it: 0 votes. Lags. The group of three economists appointed by the President to provide fiscal policy recommendations is the Council of Economic Advisers Fiscal policy refers to the manipulation of government spending and taxes to stabilize domestic output, employment, and the price level Discretionary fiscal policy is so named because it: involves specific changes in T and G undertaken expressly for . Test your understanding of fiscal policy by completing the table in Figure 30.1. Discretionary fiscal policy is so named because it: A. is undertaken at the option of the nation's central bank. C. is aimed at reducing aggregate demand and thus achieving price stability. Disincentives of . Discretionary fiscal policy requires action from Congress, so there may be considerable time lags due to debates on the appropriate response, steps in the rulemaking process, and the . (Fiscal policy cannot provide a solution to one of the situations.) As a . Discretionary fiscal and monetary policy were used during this period and not before.This makes a strong case for its success. It creates inflation. Despite the fanfare, it . But, in practice, there are many limitations of using fiscal policy. Discretionary fiscal policy is so named because it September 28, 2021 by quizs Discretionary fiscal policy is so named because it Discretionary fiscal policy is so named because it A)is undertaken at the option of the nation's central bank. According to Keynesian theories, higher government spending or lower taxes during a recession may help economic recovery. D. is invoked secretly by the Council of Economic Advisers. occurs automatically as the nation's level of GDP changes. D. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. B. occurs automatically as the nation's level of GDP changes. Fiscal Policy tools False . is invoked secretly by the Council of Economic Advisers. Now that it's in the midst of one, the country's fastidious commitment to budget-balancing has been vindicated agreement on the need for fiscal policy to have a medium-term anchor. C. involves specific changes in T and G undertaken expressly for stabilization purposes at the option of Parliament. . 1. True b. That's between 2% to 3% a year. a. It creates inflation. When a government borrows money in the financial capital market, it causes a shift in the demand for financial capital from D 0 to D 1.As the equilibrium moves from E 0 to E 1, the equilibrium interest rate rises from 6% to 7% in this example.In this way, an expansionary fiscal policy intended to shift aggregate demand to the right can also lead to a . It takes some time for policy makers to realize that a recessionary or an inflationary gap exists—the recognition lag.Recognition lags stem largely from the difficulty of collecting economic data in a timely and accurate fashion. Fiscal Policy is the use of Government spending and taxation levels to influence the level of economic activity. 1 This note refers to multipliers as one-year multipliers unless otherwise stated. Though monetary policy is the preferred macroeconomic tool under the standard policy framework, fiscal polish is important because it can operate when monetary police is less effective (when . For unlimited access to Homework Help, a Homework+ subscription is required. C)involves specific changes in taxes and government spending undertaken by Congress and the president. Large deficits make it difficult for discretionary fiscal policy because the lower taxes and/or increases in government spending can add to the national debt. . Discretionary fiscal policy requires a decision (discretion) on the part of Congress before it is implemented. Discretionary fiscal policy is so named because it: A) is undertaken at the option of the nation's central bank. Contractionary fiscal policy is so named because it: A. involves a contraction of the nation's money supply. Discretionary fiscal policy works by shifting the aggregate demand curve. restrict fiscal policy choices. Discretionary fiscal policy is so named because it. D)involves secret advice given by the Council of Economic Advisers to the president. The budget balance is a. Fiscal policy is important as it affects the income consumers take home. 1. (i . That's between 2% to 3% a year. B. occurs automatically as the nation's level of GDP changes. Discretionary fiscal policy is so named because it: A. is undertaken at the option of the nation's central bank. b. occurs automatically as the nation's level of GDP changes. To the so-called . Fiscal policy is inflexible. Because the government will have to pay interest on this debt (or repay it) in future years, expansionary fiscal policy today imposes an additional burden on future taxpayers. Discretionary fiscal policy is so named because it A is undertaken at the option from ECON MISC at Punjab College Multan By the end of this chapter you should understand: The role of fiscal policy, automatic stabilisers and discretionary policy The dynamic debt model. C) involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. B. occurs automatically as the nation's level of GDP changes. Discretionary fiscal policy is so named because it: A. is undertaken at the option of the nation's central bank. C. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. d. is invoked secretly by the Council of Economic Advisers. 1 An economy that grows more than 3% creates four negative consequences. With lower levels of income, households are unable to spend as much as previous - thereby affecting demand and hence . Germany has a long history of saving for crises. 6. During the next three years, we estimate that federal budgetary policy could restrain economic growth by as much as 1 percentage point annually beyond the . Discretionary fiscal policy is so named because it A. occurs automatically as the nation's level of GDP changes. But there are a number of potential reasons why fiscal rules might have a limited impact. Discretionary fiscal policy is so named because it: A. is undertaken at the option of the nation's central bank. Second, to the extent that they lack permanence, the rules' existence may be merely a reflection of intended policy. "Discretionary" fiscal policy is so named because it: A. is undertaken at the option of the nation's central bank. The political economy of debt. C) involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. The same chasm between narrative and reality can be seen with the much-vaunted Europe-wide "recovery fund" known as Next Generation EU (NGEU). D. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. So just because the fiscal balance goes into deficit doesn't allow us to conclude that the Government has suddenly become of an expansionary mind. Fiscal policy—the use of government expenditures and taxes to influence the level of economic activity—is the government counterpart to monetary policy. Germany's radical fiscal policy shift, and why it won't last. Figure 1. 4. B. the authority that the president has to change personal income tax rates. Discretionary fiscal policy is so named because it: is undertaken at the option of the nation's central bank. That's when prices rise too fast in clothing, food, and other necessities. An appropriate fiscal policy for a severe recession is: When tax revenues minus outlays is i. positive, the government has a budget surplus. Fiscal policy can be discretionary or nondiscretionary (automatic stabilizers). Discretionary Fiscal Policy are tools used by the government to achieve their macroeconomic goals of price stability and potential output so that the economy is stable. b. make it difficult to use discretionary fiscal policy. Discretionary fiscal policy requires a change in the structure of expenditures and taxes. UNITS 12-13: FIXING AN ECONOMY: FISCAL & MONETARY POLICY WORKSHEET USE THE LECTURE NOTES TO ANSWER THE FOLLOWING QUESTIONS (10 pts each) 1. Lags. Discretionary fiscal policy is so named because it: A. is undertaken at the option of the nation's central bank. The result is that modern depictions of the structural deficit systematically understate the degree of discretionary contraction coming from fiscal policy. because the accompanying wage reduction limits the . D) is invoked secretly by the Council of Economic Advisers. In other words, the presence of automatic stabilisers make it hard to discern whether the fiscal policy stance (chosen by the government) is contractionary or expansionary at any particular point . Federal fiscal policy during the recession was abnormally expansionary by historical standards. D. is invoked secretly by the Council of Economic Advisers. Its purpose is to expand or shrink the economy as needed. Expansionary Fiscal Policy will increase _____ and _____. Discretionary fiscal policy refers to: changes in taxes and government expenditures made by Congress, in consultation with the Executive Branch, to stabilize the economy. c. in the mid to late 1980's were the result of a severe recession. B. is invoked secretly by the Council of Economic Advisers. 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