Explain why the actual deficit is a poor measure of fiscal policy.
What will be an ideal response?
The actual deficit reflects not only the structure of taxes and government spending programs, but also the state of the economy. During a contraction, tax revenues drop and government spending rises, contributing to a deficit budget. This deficit may be the result only of automatic stabilizers and recessionary conditions. If the budget is structured so that the deficit would become a surplus before the economy reached the full-employment level of income, then the budget is acting as a force to prevent attaining full employment. Thus, the government would actually be pursuing a contraction policy.
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Which of the following topics is not a part of a typical scenario plan?
a. Expected changes in country infrastructure. b. Expected changes in labor-management relations. c. Expected changes in government intervention and regulations. d. Expected changes in budgets and capital budgeting projects. e. Expected changes property rights, tax policies, and risks.
Answer the following statement(s) true (T) or false (F)
1. Pecuniary costs occur when no money is involved. 2. The EPA was established by the Clean Air Act of 1970. 3. Transferrable pollution rights allow companies to sell pollution credits. 4. The Coase theorem was developed by a Nobel laureate. 5. The inefficiencies resulting from pollution control are eliminated by private negotiations.
The oversimplified money multiplier formula, when the required reserve ratio is m, is
A. change in money supply = change in reserves × m. B. change in money supply = (1 / m) / change in reserves. C. change in money supply = (1 / m) × change in reserves. D. change in money supply = m / change in reserves.
Movement along the aggregate expenditure line is caused by a change in the level of income.
a. true b. false