Chapter 13

Question 1

Fiscal Policy

Answer 1

Is government decisions about the level of taxation and public spending.

Question 2

Expansionary Fiscal Policy

Answer 2

To combat recession ad intended to increase Aggregate Demand.

Question 3

Contractionary Fiscal Policy

Answer 3

To combat inflation and intended to decrease Aggregate Demand.

Question 4

Automatic Stabilizers

Answer 4

Changes in fiscal policy that stimulate AD when the economy goes into recession, without government having to take any deliberate action.

These include the tax system and some government spending program like EI and welfare benefits.

Question 5

Ricardian Equivalence

Answer 5

A theory predicts if governments cut taxes but not spending, people will not change their behavior.