ECON 203 Exam 3 (2026) 100%VERIFIED
|complete QUESTIONS AND ANSWERS |
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Practice questions for this set
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what happens to the amount of money when the discount rate increases
Choose an answer
1 amount of money descreases 2 Fiscal Policy
3 Formulation Lag 4 Contractionary Fiscal Policy
Don't know?
Terms in this set (159)
,Fiscal Policy government decisions to adjust levels of
spending and taxation, in order to influence the
nation's economy
Recessionary Gap real GDP < Potential GDP
Inflationary Gap real GDP > Potential GDP
Expansionary Fiscal Policy -Cut taxes
-Increase gov spending
:used when
-economy is under performing
-recessionary gap
-below full employment
Contractionary Fiscal Policy -Raise taxes
-Cut gov spending
:used when
-economy is over performing
-inflationary gap
-unemployment too low
Crowding out effect 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
Multiplier Effect 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 1/(1-MPC)
, Taxation multiplier is negative in value because as taxes decrease,
demand for goods and services increases (GDP)
-MPC/(1-MPC) Taxation multiplier formula
Time Lags Give reason to why it can be better to let
economy fix itself in the long run
Information lag It takes time to collect and analyze economic
data. This often requires several months of data to
document an actual trend and determine that it is
not just a temporary statistical aberration
Formulation Lag 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 After a particular policy has been selected, steps
then need to be taken to implement the policy
Limit of expansionary policy tax cuts & increase in gov spending lead to
public debt
Policy Tools Discretionary & Automatic Stabilizer
Discretionary adjusting tax rates in response to economic
conditions, requires policy makers to deliberately
change tax rates
|complete QUESTIONS AND ANSWERS |
GRADED A+.
Save
Practice questions for this set
Learn 1 /7 Study with Learn
what happens to the amount of money when the discount rate increases
Choose an answer
1 amount of money descreases 2 Fiscal Policy
3 Formulation Lag 4 Contractionary Fiscal Policy
Don't know?
Terms in this set (159)
,Fiscal Policy government decisions to adjust levels of
spending and taxation, in order to influence the
nation's economy
Recessionary Gap real GDP < Potential GDP
Inflationary Gap real GDP > Potential GDP
Expansionary Fiscal Policy -Cut taxes
-Increase gov spending
:used when
-economy is under performing
-recessionary gap
-below full employment
Contractionary Fiscal Policy -Raise taxes
-Cut gov spending
:used when
-economy is over performing
-inflationary gap
-unemployment too low
Crowding out effect 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
Multiplier Effect 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 1/(1-MPC)
, Taxation multiplier is negative in value because as taxes decrease,
demand for goods and services increases (GDP)
-MPC/(1-MPC) Taxation multiplier formula
Time Lags Give reason to why it can be better to let
economy fix itself in the long run
Information lag It takes time to collect and analyze economic
data. This often requires several months of data to
document an actual trend and determine that it is
not just a temporary statistical aberration
Formulation Lag 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 After a particular policy has been selected, steps
then need to be taken to implement the policy
Limit of expansionary policy tax cuts & increase in gov spending lead to
public debt
Policy Tools Discretionary & Automatic Stabilizer
Discretionary adjusting tax rates in response to economic
conditions, requires policy makers to deliberately
change tax rates
