Economics Block 2 Chapter 31 Summary
LO 31.1 Identify and explain the purposes, tools, and limitation of fssal polisy
Council of economic Advisers A group of three economists appointed by the present to
(CEA) provide expertse and assistance on the economic
matters
Fiscal policy:
Deliberate changes in:
o Government spending
o Taxes
Designed to
o Achieve full-employment
o Control infaton
o Encourage economic growth
Expansionary fscal policy Consist of government spending increases, tax reductons, or
both, designed to increase aggregate demand and therefore
raise real GDP.
Budget defcit Government spending is excess of tax revenues
What fscal policy should the federal
government adopt to try to simulate the
economy?
1. Increase government spending
2. Decrease tax
3. Combinaton of the two
4. Create a defcit
Contractonary fscal policy
Use during demand-pull infaton
Decrease governement spending
Increase taxes
Combinaton of bith
Create a surplus
Policy optons: G or T?
To expand to the size of government
o Id recession increase government spending
o If infaton increase taxes
To reduce the size of government
o If recession decrease taxes
o If infaton decrease government spending
, Economics Block 2 Chapter 31 Summary
LO31.2 Explain the role of built-in stabilizers in moderatinn business sysles
Built-in stability
Automatc stabilizers
o Taxes vary directly with GDP
o Transfer vary inversely with GDP
Reduce severity of business fuctuatons
Tax progressivity
o Progressive tax system
o Proportonal tax system
o Regressive tax system
LO31.3 dessribe how the syslisally adjusted budnet reveals the status of U.S. fssal polisy
Evaluatng fscal policy
Is the fscal policy
o Expansionary
o Neutral when there is no change in G and T
o Contractonary decrease of spending (G) or increase tax rates such that tax
revenues increase
Use the cyclically adjusted budget to evaluate
Cyclically adjusted budget (also called full-employment budget) to adjust actual federal
budget defcits and surpluses to account for the change in tax
revenues that happen to automatcally whenever GDP changes
Cyclical defcit By-product of the economy’s slide into recession, not the result
of discretonary fscal actons by the government
LO 31.1 Identify and explain the purposes, tools, and limitation of fssal polisy
Council of economic Advisers A group of three economists appointed by the present to
(CEA) provide expertse and assistance on the economic
matters
Fiscal policy:
Deliberate changes in:
o Government spending
o Taxes
Designed to
o Achieve full-employment
o Control infaton
o Encourage economic growth
Expansionary fscal policy Consist of government spending increases, tax reductons, or
both, designed to increase aggregate demand and therefore
raise real GDP.
Budget defcit Government spending is excess of tax revenues
What fscal policy should the federal
government adopt to try to simulate the
economy?
1. Increase government spending
2. Decrease tax
3. Combinaton of the two
4. Create a defcit
Contractonary fscal policy
Use during demand-pull infaton
Decrease governement spending
Increase taxes
Combinaton of bith
Create a surplus
Policy optons: G or T?
To expand to the size of government
o Id recession increase government spending
o If infaton increase taxes
To reduce the size of government
o If recession decrease taxes
o If infaton decrease government spending
, Economics Block 2 Chapter 31 Summary
LO31.2 Explain the role of built-in stabilizers in moderatinn business sysles
Built-in stability
Automatc stabilizers
o Taxes vary directly with GDP
o Transfer vary inversely with GDP
Reduce severity of business fuctuatons
Tax progressivity
o Progressive tax system
o Proportonal tax system
o Regressive tax system
LO31.3 dessribe how the syslisally adjusted budnet reveals the status of U.S. fssal polisy
Evaluatng fscal policy
Is the fscal policy
o Expansionary
o Neutral when there is no change in G and T
o Contractonary decrease of spending (G) or increase tax rates such that tax
revenues increase
Use the cyclically adjusted budget to evaluate
Cyclically adjusted budget (also called full-employment budget) to adjust actual federal
budget defcits and surpluses to account for the change in tax
revenues that happen to automatcally whenever GDP changes
Cyclical defcit By-product of the economy’s slide into recession, not the result
of discretonary fscal actons by the government
