Chaptwr 32 Book

Question 1

Sound finance

Answer 1

Was a view of fiscal policy that the government budget should always be balanced except in wartime

Question 2

Ricardian equivalence theorem

Answer 2

Theoretical proposition that deficits do not affect the level of output in the economy because individuals increase their savings to account for expected future tax payments to repay the deficit

Question 3

Functional finance

Answer 3

As a theoretical proposition, governments should make spending and taxing decisions on the basis of their effect in the economy, not on the basis of some moralistic principle that budgets should be balanced

Question 4

Under functional finance if spending in the economy is too low what should happen?

Answer 4

The government should run a deficit

Question 5

Under functional finance if the spending is too high what should happen?

Answer 5

The government should run a surplus