KEY
ECO-201 Macroeconomics
Lesson 12 – Fiscal Policy
Week 9A
4 short-answer questions @ 5-points
4 M/C questions @ 1-points each
Macroeconomics, 2nd Edition
1. For Discussion- page 263:
What is the difference between government expenditures and government
purchases? How do the two-variables differ in terms of their effect on
GDP?
Government expenditures encompass all federal spending, including
transfer payments and government purchases.
Government purchases include only purchases of goods and services.
Government purchases are a part of GDP; transfer payments are not. This
component of government spending affects GDP only when the funds
received as transfer payments are spent to purchase goods and services.
2. For Discussion – page 263
Federally funded student aid programs generally reduce benefits by $1 for
every $1 that recipients earn. Do such programs represent purchases or
transfer payments? Are they automatic stabilizers?
Student aid programs are transfer payments.
These payments are likely to fall as real GDP rises, because an increase in
economic activity is likely to generate more employment opportunities for
students. Spending for the programs will thus fall as GDP rises and will
therefore act as automatic stabilizers.
Week 2 Questions
Page 1 of 3
3. For Discussion - page 263
Crowding out reduces the degree to which a change in government
purchases influences the level of economic activity. Is it a form of
automatic stabilizer?
NO.
First, it isn’t a government program.
Second, it acts to REDUCE the impact of changes in fiscal policy; it doesn’t
insulate the economy from other shocks.
10. For Discussion - page 264:
Give and justify your view on whether government borrowing can shift the
cost of providing public sector goods and services from one generation to
the next.
The argument that the burden can’t be shifted rests on the assumption that
taxing one group to make interest payments to another is a redistribution of
income.
The argument that the burden can be shifted holds that such a transaction is
not a redistribution but a payment for postponing consumption. In this view, it
is no more a redistribution than is the payment of government employees for
services rendered.
Page 2 of 3
Video Questions for Lesson 12
Select the ONE best answer
1. In the video "Fiscal Policy," an economist states that the value of the
national debt in 1800 would be approximately _______ dollars in the year
2000.
a.
b.
c.
d.
83 million
830 million
1 billion
83 billion
2. In the video "Fiscal Policy," President Reagan's tax cuts were based on
the work of
a.
Milton Freidman
b.
John Maynard Keynes
c.
Arthur Laffler
d.
Adam Smith
3. The economists in the video "Fiscal Policy" all agree that it is very
important to pay off the national debt.
A.
B.
True
False
4. In the video "Fiscal Policy," the Laffler curve illustrates that if taxes are
cut, tax revenues increase.
a.
b.
True
False
Page 3 of 3