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What is the key difference between automatic and discretionary fiscal policy?
Automatic stabilizers work without new government action, while discretionary policy requires new laws or decisions.
Compare the timing of automatic vs discretionary fiscal policy.
Automatic stabilizers respond immediately, discretionary policy involves lags.
What is the difference between a budget deficit and a budget surplus?
A budget deficit occurs when government spending exceeds tax revenues, while a budget surplus occurs when tax revenues exceed government spending.
Compare the effects of automatic stabilizers during a recession vs. an expansion.
During a recession, they increase spending and decrease taxes; during an expansion, they decrease spending and increase taxes.
What is the difference between fiscal and monetary policy?
Fiscal policy involves government spending and taxation, while monetary policy involves managing the money supply and interest rates.
How do automatic stabilizers compare to supply-side policies in addressing economic downturns?
Automatic stabilizers focus on demand-side effects, while supply-side policies aim to improve the economy's productive capacity.
Compare the impact of automatic stabilizers on different income groups during a recession.
They tend to benefit lower-income groups more, as they are more likely to receive unemployment benefits and welfare assistance.
How do automatic stabilizers compare to government regulations in influencing economic activity?
Automatic stabilizers work through existing fiscal policies, while government regulations involve setting rules and standards for businesses and individuals.
Compare the effectiveness of automatic stabilizers in different types of recessions (e.g., mild vs. severe).
They are generally more effective in mild recessions, as they may not be sufficient to address the challenges of a severe economic downturn.
How do automatic stabilizers compare to international trade policies in influencing a country's economy?
Automatic stabilizers focus on domestic economic conditions, while international trade policies involve managing trade relationships with other countries.
How do unemployment benefits work during a recession?
They increase disposable income for the unemployed, boosting aggregate demand.
How do progressive income taxes work during an expansion?
They take a larger percentage of income from higher earners, reducing disposable income and slowing down spending.
What is the effect of welfare programs during economic downturns?
They provide a safety net for families in need, helping to maintain some level of spending.
How do automatic stabilizers affect budget deficits during recessions?
They lead to increased government spending and reduced tax revenues, increasing budget deficits.
How do automatic stabilizers affect budget surpluses during expansions?
They lead to decreased government spending and increased tax revenues, increasing budget surpluses.
How do automatic stabilizers affect aggregate demand during a recession?
They increase aggregate demand by boosting disposable income and government spending.
How do automatic stabilizers affect aggregate demand during an expansion?
They decrease aggregate demand by reducing disposable income and government spending.
How do automatic stabilizers affect GDP during a recession?
They help to prevent a deeper recession by supporting aggregate demand and maintaining economic activity.
How do automatic stabilizers affect GDP during an expansion?
They help to cool down the economy and reduce the risk of inflation by slowing down spending.
How do automatic stabilizers impact the severity of the business cycle?
They reduce the severity of economic fluctuations but do not eliminate the business cycle entirely.
What are automatic stabilizers?
Fiscal policies already in place to counteract economic fluctuations without new government action.
Define progressive income taxes.
A tax system where higher earners pay a larger percentage of their income in taxes.
What are unemployment benefits?
Government payments to individuals who have lost their jobs and are actively seeking employment.
Define welfare programs.
Government programs that provide assistance to individuals and families in need, such as TANF.
What is discretionary fiscal policy?
Government actions to influence the economy through deliberate changes in spending or taxation.
Define budget deficit.
When government spending exceeds tax revenues in a given period.
Define budget surplus.
When tax revenues exceed government spending in a given period.
What is aggregate demand?
The total demand for goods and services in an economy at a given price level and time.
Define GDP.
The total value of goods and services produced within a country's borders in a specific time period.
What is the business cycle?
The periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables.