What is the distinction between automatic and discretionary fiscal policy?
What will be an ideal response?
Automatic fiscal policy is triggered by the state of the economy with no need for any government action. Discretionary fiscal policy, however, requires an act of Congress to either change government spending and/or change taxes.
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Considering only the goods and forex markets, as the economy adjusts to lower rates of interest and equilibrium is restored, the level of GDP will:
A) fall. B) rise. C) become unstable. D) decline very gradually.
Which of the following would cause the actual deposit expansion multiplier to be less than its potential?
a. the general public holding of funds in the form of currency rather than bank deposits b. the holding of excess reserves by commercial banks c. the general public holding of funds in the form of coins rather than bills d. both a and b