5.0 Flashcards
Keynesian Revolution established that government should spend in _____ and save in _______
bad days
good days
are triggered by “objective” changes in the economy
automatic stabilizers
are implemented automatically
automatic stabilizers
if unemployment rises, employment insurance payments
increase
is justified if automatic stabilizers fail or are thought to fail in moderating the business cycle
discretionary fiscal policy action
moderating the business cycle is called
counter-cyclical fiscal policy
primary goal of fiscal policy in the Keynesian sense is to
moderate the business cycle, to stabilize the economy
tool provided by Keynes to allow the government to stabilize the business cycle without having to do it all itself
the Multiplier
If aggregate supply is elastic GEM will be
large
if AS is inelastic GEM will be
small
the higher the MPC the _____ the slope of the AEC and _____ GEM
steeper
greater
the lower the MPC the _____ the slope of the AEC and _____ the GEM
gentler
lower
act as automatic stabilizers
taxes
is immediately spent
autonomous expenditure
a decrease in autonomous tax is only
partially spent
discretionary policy can suffer from
policy lags
in an upturn, the unemployment insurance fund _____ while outflow _____
increases
diminishes
in downturn, income _____ and marginal taxes ______
fall
decreases
during upswing of business cycle, interest rate
rises
rising interest rates attracts
foreign investment
Canadian exports becoming more expensive shifts the aggregate demand curve
left
during downturn Canadian interest rates tend to fall and foreign investments
decline
reduction of the foreign exchange rate makes Canadian exports _______ and causes an _______ in domestic AD
less expensive
increase
assuming price stability, an expansionary fiscal policy will push __________ by the __________
- aggregate planned demand up
- the change times the appropriate multiplier
involves a decrease in Gov. expenditure, transfers and or an increase in taxes
contractionary fiscal policy
contractionary fiscal policy will lead to a _______ in AD at the __________
- decrease
- same price level times the appropriate multiplier
there is some unemployment if the economy is
below potential GDP
expansionary fiscal policy fails, there is no increase in real GDP and the only change is an increase in price level if
the economy is at potential
if taxes rise, cost of production______ and the ASC shift _____
increases
left
if taxes fall the ASC will shift _____ and ______ potential GDP
right
increase
have an effect on both the AD and the AS
taxes
policy tools lose effectiveness once taxes reach
0
