Jeopardy - Fiscal Policy

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1 Jeopardy - Fiscal Policy Federal Budget Discretionary Fiscal Policy Automatic Stabilizers Limitations Tools/ Situations

2 This occurs when the government spends more than it collects in taxes. Federal Budget 10 points Answer: Budget Deficit

3 The Government spends less than it receives in revenue. Federal Budget 20 points Answer: Budget Surplus

4 An equal amount of Government expenditure and revenue. Federal Budget 30 points Answer: Balanced Budget

5 Name three ways of dealing with a budget surplus. Federal Budget 40 points Answer: 1) Reduce the Government Debt 2) Keep the Surplus Idle 3) Give the surplus back to the taxpayers

6 Increasing Government spending - therefore raising the budget deficitduring recessionary periods helps provide economic stimulus. This is an example of what theory. Federal Budget 50 points Answer: Keynesian Theory

7 Increasing aggregate demand to stimulate economic growth is an example of Discretionary Fiscal Policy 10 points Answer: Expansionary policy

8 State two types of Discretionary fiscal policy. Discretionary Fiscal Policy 20 points Answer: Expansionary policy and Contractionary policy

9 Decreasing taxes and/or increasing government spending is an example of Discretionary Fiscal Policy 30 points Answer: Expansionary policy

10 To reduce inflation, the government implements Contractionary policy Discretionary Fiscal Policy 40 points

11 Discretionary fiscal policy happens when the Government takes deliberate actions through legislation spending to alter or policies in order to influence the level of spending taxation employment and. Discretionary Fiscal Policy 50 points

12 During a recession the number of people eligible for this insurance increases. Automatic Stabilizers 10 points Answer: Employment Insurance

13 Helps to prevent the economy from falling deeply into recession by decreasing taxes. Automatic Stabilizers 20 points Answer: Progressive Income Tax

14 Employment insurance creates an increase in government spending and economic activity. Automatic Stabilizers 30 points

15 Fiscal drag is built in stabilization that prevents the economy from recovering from the state of high unemployment and low economic activity Automatic Stabilizers 40 points

16 Automatic economic stabilizers are measures that operate increase to the budget surplus in inflationary periods and increase the budget deficit in. Automatic Stabilizers 50 points automatically recession

17 The number of main problems associated with fiscal policy is Four (4) Limitations 10 points

18 This is the time it takes before a fiscal policy change has an impact in the economy. Limitations 20 points Answer: Implementation Lag

19 Recognition lag is the time it takes for the government to recognize that a economic problem exists and how severe it is. Limitations 30 points

20 As Canada is a democratic nation, this time period for solving an economic problem is very lengthy. Limitations 40 points Answer: Decision Lag

21 This period of time also known as the effect lag, shows the effectiveness of the decision on aggregate expenditure, output and employment. Limitations 50 points Answer: Impact Lag

22 Government spending goes up while taxes remain the same. State if it s Contractionary policy or Expansionary policy. Tools/Situation 10 points Answer: Expansionary policy As government expenditure is increasing, therefore increasing aggregate demand

23 Name the two gaps shown in this graph. Recessionary Gap: Low levels of employment, output, and inflation. Able to increae the output level without upward pressure on the prices of all goods/services because most of society s resources are sitting idle Inflationary Gap: At higher levels, prices tend to rise much more rapidly. There is a direct relation between output level and prices Tools/Situation 20 points

24 If the following scenarios were to occur, how do you correct the situation Scenario Objective for Aggregate Demand (increase/ decrease) Action on Taxes (increase/ decrease) Action on Government Spending (increase/ decrease) Effect on Federal Budget (deficit/ surplus) Effect on the National Debt (increase/ decrease) National unemployment rate rises to 12% Inflation is strong at a rate of 14% per year increase decrease increase towards increase deficit decrease increase decrease towards surplus decrease Tools/Situations 30 points

25 The government reduces the wages of its employees while raising taxes on the consumers and businesses. Other government spending remains the same. State if it s Contractionary policy or Expansionary policy. Category 5 40 points Answer: Contractionary policy. As taxes increase and government incomes decrease

26 Scenario As a result of a recession, more families qualify for welfare benefits The government raises corporate tax rates The government launches a new defenses program Incomes fall. And as a result people pay a smaller fraction of their incomes in taxes The government cuts all employee wages and salaries by 5% Automatic or Discretionary A D D A D Expansionary or Contractionary E C E E C Tools/Situations 50 points

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