Chapter 15: Fiscal Policy Flashcards
Define The Term: Fiscal Policy
The actions that government takes to affect output (GDP) and employment through taxes, spending, and borrowing
Explain the basic concepts behind Keynesian Economics
Countercyclical
When economy is doing well, tax and save
When the economy is doing poorly, lower taxes and spend
What are the two primary categories within the national budget?
Discrentionary/Mandatory
Define The Term: Marginal Propensity to Consume
The percentage of each dollar a person spends
Define The Term: Marginal Propensity to Save
1 Minus the MPC, essentially with whatever is left over
Name at least one problem with Governmental Spending as a Tool of Fiscal Policy
Time lags
Uncertain Multipliers/mathematical factors
Politics
The Source of the Additional Spending
Define The Term: Federal Insurance Contribution Act (FICA)
The act that created taxes for social security
Define The Term: Excise Tax
A tax levied on a specific good or service (cigarettes, gas, alcohol)
List the three main types of taxes
Proportional
Progressive
Regressive
Explain a Proportional tax
Also called a flat tax, everyone pays the same proportion (ex. 15%) regardless of income
Explain a progressive tax
The more you make, the more percentage of a given income bracket you make
Explain a regressive tax
A tax that gets smaller as a percentage of overall income the more you increase your income
Name at least one problem with taxes as a tool of fiscal policy
Effect on the national work ethic
Confusion in the marketplace
Name at least one problem with governmental borrowing as a tool of fiscal policy
There is no money sitting for the government to borrow
Government borrowing tends to lead to more borrowing
Has a tendency to decrease productivity
What are the three tools of fiscal policy?
Taxing, borrowing, spending
