Exploring the Challenges of Effective Fiscal Policy

The video discusses the role of fiscal policy during recessions, emphasizing the importance of timely, targeted, and temporary stimulus. It highlights challenges such as timing lags, the need for automatic stabilizers, and the difficulty in targeting unemployed workers. The video also covers the magnitude of spending required to offset demand shocks and concludes with a summary of key points.

What are the three ideal characteristics of a stimulus?

• Slow, broad, and permanent

• Immediate, unspecified, and ongoing

• Timely, targeted, and temporary

• Quick, random, and long-lasting

What makes hiring unemployed workers during a recession ideal?

• Government hiring is more efficient

• They are usually not skilled

• They demand higher wages

• Their opportunity cost is low

What is a significant challenge in implementing fiscal policy effectively?

• Lack of projects to spend on

• Quick legislative approval

• Immediate action without planning

• Long timing lags from concept to implementation

Why do most economists favor automatic stabilizers?

• They require annual legislative approval

• They increase the budget deficit significantly

• They act without the need for new legislation

• They only apply to the wealthy

What is a recognition lag in fiscal policy?

• Time for the policy to affect the economy

• Time to identify an economic problem

• Time to spend the allocated budget

• Time to draft and pass legislation

What does 'shovel-ready' imply in the context of fiscal policy?

• Projects that require no planning

• Automatic stabilizers

• Construction projects ready to start

• Policies that can be implemented without legislation

Why is targeting important in fiscal policy?

• To ensure funds are spent internationally

• To hire workers from specific industries only

• To direct funds where they are most needed and effective

• To focus on long-term projects only

What percentage of the US budget is considered non-negotiable?

• 20%

• 35%

• 65%

• 50%

What was the approximate size of the 2009 US stimulus as a percentage of the annual GDP?

• 10%

• 5%

• 15%

• 2%

What limits the magnitude of fiscal policy?

• Unlimited government funds

• Constraints on discretionary spending

• Public opposition to spending

• Lack of economic understanding