chapter 6 Flashcards
What are 4 economic theories?
- Rational expectation theory -
- Keynesian Theory -
- Monetarist theory -
- supply-side economics -
What is the rational expectation theory?
the idea is that workers and firms will anticipate government policy change therefore neutralizing the intended effect of the new policy.
what is the keynesian theory?
the idea is to use direct government intervention to change the business cycles. If a recession is looming the government could spend more and lower taxes. if the economy is high they could cut spending and raise taxes.
what is the monetarist theory?
idea that the economy will works its self out and inflation and recessions are directly tied to changes in the amount of money in circulation. manipulating the money supply to control inflation and growth.
what is the supply-side economics theory?
idea that government intervention should be left to a minimum. government should use tax’s and main way to effect economy.
what is fiscal policy?
governments using tax, spending and borrowing policies to smooth out fluctuations in the markets and sustain long term growth.
what is the general strategy of fiscal policy?
governments spend more and lower taxes during recession and spend less and raise taxes during peaks.
what is the federal government responsible for when it comes to fiscal policy?
employment insurance, defence, old-age security, veterans affairs and native affairs.
what is the provinces responsibility when it comes to fiscal policy?
health, education and welfare.
federal governments transfer money to provinces to help cover costs for these areas.
where is the federal budget announced?
at the house of commons by the federal minister of finance.
what does the federal budget outline?
the budget contains predictions for subsequent years spending, revenue, amount of projected deficit or surplus and debt.
what does the government due if it budget runs a deficit?
they issue bonds and treasury bills to make up deficit. other sources are special income funds like the civil pension fund lessening amount they need to borrow
what is the national debt?
it is the sum of past surpluses minus past deficits.
