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9 Cards in this Set
- Front
- Back
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d: fiscal policy
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changes in government purchases, transfer payments and taxes
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can fiscal policy have demand side effects in the short run
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yes
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d: countercyclical fiscal policy
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a change in government purchases or net taxes designed to reverse or prevent a recession or a boom
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what is the most direct way to cure a recession w fiscal policy
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to have the government buy things
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to determine how much the government should buy what formula do you use
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ΔGDP = multiplier X ΔG
solve for the ΔG example: recession of $100, the multiplier is 2.5 100= 2.5 X G 100/2.5= G G=40 |
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the multiplier for a change in net taxes will be ____ than the government purchases multiplier
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smaller
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net tax multiplier formula
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-MPC X expenditure multiplier
ΔGDP= net tax multiplier X ΔT |
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what are some problems with employing fiscal policy
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timing
irreversibility forward looking behavior reaction of the fed |
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what are the timing problems with employing fiscal policy
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takes many months for fiscal changes to be enacted
very few governemnt spending initatives are ready when its time for fiscal changes to be enacted |
