age 1 of 43
ECON 203 Exam 3 (Pakhotina) questions with correct
answers
Fiscal Policy ......ANSWER........government decisions to adjust
levels of spending and taxation, in order to influence the nation's
economy
Recessionary Gap ......ANSWER........real GDP < Potential GDP
Inflationary Gap ......ANSWER........real GDP > Potential GDP
Expansionary Fiscal Policy ......ANSWER........-Cut taxes
-Increase gov spending
:used when
-economy is under performing
-recessionary gap
,age 2 of 43
-below full employment
Contractionary Fiscal Policy ......ANSWER........-Raise taxes
-Cut gov spending
:used when
-economy is over performing
-inflationary gap
-unemployment too low
Crowding out effect ......ANSWER........If gov borrows more
money, that increases interest rates, making it harder for
businesses to borrow money to buy things
Increase interest rates ---> Decrease private investments
,age 3 of 43
Multiplier Effect ......ANSWER........An effect in economics in which
an increase in spending produces an increase in national income
and consumption greater than the initial amount spent.
Multiplier equation ......ANSWER........1/(1-MPC)
Taxation multiplier ......ANSWER........is negative in value because
as taxes decrease, demand for goods and services increases
(GDP)
-MPC/(1-MPC) ......ANSWER........Taxation multiplier formula
Time Lags ......ANSWER........Give reason to why it can be better
to let economy fix itself in the long run
Information lag ......ANSWER........It takes time to collect and
analyze economic data. This often requires several months of
, age 4 of 43
data to document an actual trend and determine that it is not
just a temporary statistical aberration
Formulation Lag ......ANSWER........which lag?
Once government policy makers have identified the problem,
they need to decide on a suitable course of action, then pass
whatever legislation, laws, or administrative rules are necessary.
Often this requires an act of Congress, signed into law by the
President.
Implementation Lag ......ANSWER........After a particular policy
has been selected, steps then need to be taken to implement the
policy
Limit of expansionary policy ......ANSWER........tax cuts & increase
in gov spending lead to public debt
ECON 203 Exam 3 (Pakhotina) questions with correct
answers
Fiscal Policy ......ANSWER........government decisions to adjust
levels of spending and taxation, in order to influence the nation's
economy
Recessionary Gap ......ANSWER........real GDP < Potential GDP
Inflationary Gap ......ANSWER........real GDP > Potential GDP
Expansionary Fiscal Policy ......ANSWER........-Cut taxes
-Increase gov spending
:used when
-economy is under performing
-recessionary gap
,age 2 of 43
-below full employment
Contractionary Fiscal Policy ......ANSWER........-Raise taxes
-Cut gov spending
:used when
-economy is over performing
-inflationary gap
-unemployment too low
Crowding out effect ......ANSWER........If gov borrows more
money, that increases interest rates, making it harder for
businesses to borrow money to buy things
Increase interest rates ---> Decrease private investments
,age 3 of 43
Multiplier Effect ......ANSWER........An effect in economics in which
an increase in spending produces an increase in national income
and consumption greater than the initial amount spent.
Multiplier equation ......ANSWER........1/(1-MPC)
Taxation multiplier ......ANSWER........is negative in value because
as taxes decrease, demand for goods and services increases
(GDP)
-MPC/(1-MPC) ......ANSWER........Taxation multiplier formula
Time Lags ......ANSWER........Give reason to why it can be better
to let economy fix itself in the long run
Information lag ......ANSWER........It takes time to collect and
analyze economic data. This often requires several months of
, age 4 of 43
data to document an actual trend and determine that it is not
just a temporary statistical aberration
Formulation Lag ......ANSWER........which lag?
Once government policy makers have identified the problem,
they need to decide on a suitable course of action, then pass
whatever legislation, laws, or administrative rules are necessary.
Often this requires an act of Congress, signed into law by the
President.
Implementation Lag ......ANSWER........After a particular policy
has been selected, steps then need to be taken to implement the
policy
Limit of expansionary policy ......ANSWER........tax cuts & increase
in gov spending lead to public debt
