CoreMicroEconomics_CH_10 Flashcards
Automatic stabilizers
Tax revenues and transfer payments automatically expand or contract in ways that reduce the intensity of business fluctuations without any overt action by Congress or other policymakers. Pg. 233
Expansionary fiscal policy
Involves increasing government spending, increasing transfer payments, or decreasing taxes to increase aggregate demand to expand output and the economy. Pg. 226
Crowding-out effect
Arises from deficit spending requiring the government to borrow, thus driving up interest rates and reducing consumer spending and business investment. Pg. 234
Implementation lag
The time required to turn fiscal policy into law and eventually have an impact on the economy. Pg. 234
Discretionary fiscal policy
Involves adjusting government spending and tax policies with the express short_run goal of moving the economy toward full employment, expanding economic growth, or controlling inflation. Pg. 223
Discretionary spending
The part of the budget that works its way through the appropriations process of Congress each year and includes such programs as national defense, transportation, science, environment, and income security. Pg 223
Contractionary fiscal policy
Involves increasing withdrawals from the economy by reducing government spending, transfer payments, or raising taxes to decrease aggregate demand to contract output and the economy. Pg. 228
Decision lag
The time it takes Congress and the administration to decide on a policy once a problem is recognized. Pg. 234
Information lag
The time policymakers must wait for economic data to be collected, processed, and reported. Most macroeconomic data are not available until at least one quarter (three months) after the fact. p. 234Laffer curve
Plots hypothetical tax revenues at various income tax rates. If tax rates are zero, tax revenues will be zero; if rates are 100%, revenues will also be zero. As tax rates rise from zero, revenues rise, reach a maximum, and then decline. (p. 231)
Mandatory spending
Spending authorized by permanent laws that does not go through the same appropriation process as discretionary spending. Mandatory spending includes such programs as Social Security, Medicare, and interest on the national debt. (p. 223)
Recognition lag
Policies that focus on shifting the long-run aggregate supply curve to the right, expanding the economy without increasing inflationary pressures. Unlike policies to increase aggregate demand, supply-side policies take longer to have an impact on the economy. (p. 229)
.
The time it takes for policymakers to confirm that the economy is trending in or out of a recession. Short-term variations in key economic indicators are typical and sometimes represent nothing more than randomness in the data. (p. 234)
Supply_side fiscal policies
