Fiscal Policy Flashcards
What’s fiscal policy knows as
Demand management
Two forms of fiscal policy
Tax and government spending
Progressive tax
Marginal rate of tax increases as income rises
Proportion taxes
Rate of tax paid is constant
Regressive
Rate of tax falls as income rises
Direct tax
Tax that a person or organisation pays directly to the entity imposed it
Indirect tax
Taxes levied on goods and services
Tight fiscal policy
Lower spending higher tax
Less demand
Loose fiscal policy
Higher spending less tax
More demand
Fiscal stimulus
Either an increase in gov spending or decrease tax to shift AD
Evaluating fiscal policy
Multiplier
Magnitude LR/SR
Confidence
Accelerator theory
Investment increases when either demand or income increases
What does lowering tax do to aggregate supply
Increases size of labour and the therefore supply
What does increasing gov spending on infrastructure do to AS
More infrastructure more supply
Disinflation
Inflation lowers
