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    Fiscal Policy Exercise-1

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    caden matthews
    This document discusses fiscal policy and provides examples of expansionary and contractionary fiscal policy actions. It defines expansionary fiscal policy as actions that increase aggregate demand to boost output, and contractionary fiscal policy as actions that decrease aggregate demand to control inflation. The document then lists 10 government fiscal actions and identifies each as expansionary or contractionary and as discretionary or a built-in stabilizer. It also includes a table to test understanding of expanding or contracting aggregate demand objectives of fiscal policy based on the related impacts on taxes, government spending, and the budget balance or deficit.

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    Fiscal Policy Exercise-1

    Uploaded by

    caden matthews
    86 views3 pages
    This document discusses fiscal policy and provides examples of expansionary and contractionary fiscal policy actions. It defines expansionary fiscal policy as actions that increase aggregate demand to boost output, and contractionary fiscal policy as actions that decrease aggregate demand to control inflation. The document then lists 10 government fiscal actions and identifies each as expansionary or contractionary and as discretionary or a built-in stabilizer. It also includes a table to test understanding of expanding or contracting aggregate demand objectives of fiscal policy based on the related impacts on taxes, government spending, and the budget balance or deficit.

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    Fiscal Policy Exercise-1 (2)

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    This document discusses fiscal policy and provides examples of expansionary and contractionary fiscal policy actions. It defines expansionary fiscal policy as actions that increase aggregate demand to boost output, and contractionary fiscal policy as actions that decrease aggregate demand to control inflation. The document then lists 10 government fiscal actions and identifies each as expansionary or contractionary and as discretionary or a built-in stabilizer. It also includes a table to test understanding of expanding or contracting aggregate demand objectives of fiscal policy based on the related impacts on taxes, government spending, and the budget balance or deficit.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    86 views3 pages

    Fiscal Policy Exercise-1

    Uploaded by

    caden matthews
    This document discusses fiscal policy and provides examples of expansionary and contractionary fiscal policy actions. It defines expansionary fiscal policy as actions that increase aggregate demand to boost output, and contractionary fiscal policy as actions that decrease aggregate demand to control inflation. The document then lists 10 government fiscal actions and identifies each as expansionary or contractionary and as discretionary or a built-in stabilizer. It also includes a table to test understanding of expanding or contracting aggregate demand objectives of fiscal policy based on the related impacts on taxes, government spending, and the budget balance or deficit.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Fiscal Policy Exercise

    Define: expansionary fiscal policy: Fiscal Policy that increases aggregate


    demand to increase output.

    Define: contractionary fiscal policy: Fiscal Policy that decreased aggregate


    demand to control inflation.
    Listed below are fiscal policy actions. In each case, Congress initiates the action. For each
    action, indicate whether it will be expansionary or contractionary. Then, indicate whether
    it would be discretionary or built-in stabilizer.
    Government Action Expansionary or Discretionary or
    Contractionary? Built-in
    Stabilizer?
    1. Recession raises the amount of Expansionary Built-in
    unemployment compensation paid Stabilizer
    2. Cuts personal income tax rates Expansionary Discretionary

    3. Incomes rises; people pay a higher Contractionary Built-in


    fraction of their incomes in taxes Stabilizer
    4. As result of recession, more families Expansionary Built-in
    qualify for food stamps and welfare Stabilizer
    5. Eliminates the deductibility of interest Contractionary Discretionary
    expense for tax purposes
    6. Launches a major new space program to Expansionary Discretionary
    explore Mars
    7. Raises Social Security taxes paid by Contractionary Discretionary
    workers
    8. Corporate profits increase; government Contractionary Built-in
    collects more corporate income taxes as a Stabilizer
    result
    9. Raises corporate income tax rates Contractionary Discretionary
    10. Gives all federal employees a 5% raise Expansionary Discretionary

    Testing your Understanding of Fiscal Policy

    Choose either Expansionary or Contractionary fiscal policy and fill in the spaces in the
    table below as follows:
    Column A: AD objective I for increase in AD
    D for decrease in AD
    Column B: Action on taxes I for increase in taxes
    D for decrease in taxes
    Column C: Action of Government spending I for increase in government spending
    D for decrease in government spending
    Column D: Effect on Budget D for movement toward deficit
    S for movement toward surplus

    Col A Col B Col C Col D


    AD objective Action on Action of Effect on
    taxes Government Budget
    spending

    1. The national I D I D
    unemployment rate
    rises to 12%
    2. Inflation is raging D I D S
    and its rate is now
    14% per year
    3. Surveys show I D I D
    consumers are losing
    confidence in the
    economy; retail sales
    are weak, and
    business Inventories
    are increasing rapidly
    4. Business sales and D I D S
    investments are
    expanding rapidly,
    and economists
    believe that strong
    inflation lies ahead.
    5. Inflation persists
    while unemployment
    stays high.

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