_______ _______changes in government expenditures and taxation

to achieve macroeconomic goals.

Fiscal policy may affect whether the economy produces

at ____ ______ ___ in the short run.

Fiscal policy may affect the level of _______ ______ in the long run.

1. Natural Real GDP

2. economic growth

True or false:

 Changes in fiscal policy do not affect the federal government’s budget.

False.

_____ _____ when government expenditures are greater

than tax revenues.

__________ ____________when tax revenues are greater

than government expenditures.

1. Budget deficit

2. Budget surplus

According to Keynesian theory, the level of Real GDP is determined

by the level of _______ ________.

 The level of Total Expenditures may not be the level that will

cause the economy to achieve ______ _____ _______.

1. Total Expenditures.

2. Natural Real GDP

The federal government may be able to move the level of TE toward the ideal level (and move Real GDP toward Natural Real GDP) by using _____ 

_________.

To close a recessionary gap, Keynesian theory calls for the

use of __________ fiscal policy

(an ________ in government

expenditures or a decrease in taxation).

1. expansionary

2. increase 

  Keynesian theory calls for the use of ________ __________ to

close a recessionary gap.

1.       To close an inflationary gap, Keynesian theory calls for the use of

___________ fiscal policy

(a __________ in government expenditures

or an increase in taxation).

1. contractionary

2. decrease 

Keynesian theory calls for the use of ______ ________ to

close an inflationary gap.

1.       Certain transfer payments will automatically increase during a recessionary gap and decrease during an inflationary gap.

Give an example.

Certain taxes will automatically decrease during a recessionary

gap and increase during an inflationary gap.

Give an example.

_________ _________ - taxes and transfer payments that automatically

tend to move equilibrium Real GDP toward Natural Real GDP.

Potential Problems with Fiscal Policy

 There may be a ______ ______toward expansionary fiscal

policy at all times.

      ______ ______– increases in government spending lead to decreases

in private spending.

Fiscal policy may be _______because of lags

Fiscal policy may be _________.

 1. political bias 

2. Crowding out –

3. mistimed 

4. miscalculated