fiscal policy Flashcards
Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability, healthy rates of economic growth, and high employment.
taxes; purchases
Fiscal policy refers to the:
spending and taxing policies used by the government to influence the level of economy activity.
he largest source of revenue for the Australian federal government is:
personal income tax.
If the economy is growing beyond potential GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in:
taxes.
An increase in government purchases of $200 billion will shift the aggregate demand curve to the right by:
more than $200b
what is an automatic stabiliser?
a tax or form of government expenditure that has the effect of reducing the size of business cycle fluctuations.
A federal budget deficit acts as an automatic stabiliser because
government tax revenues decrease during a recession
Crowding out results in:
higher interest rates, a higher exchange rate, and lower net exports
The dynamic aggregate demand and aggregate supply model takes into account that
- the economy experiences continuing inflation, with the price level rising every year
- the economy experiences long-run growth, with the LRAS curve shifting to the right every year
To fight economic contractions and recessions the government can:
increase government purchases or cut taxes
expansionary fiscal policy causes the aggregate demand
(AD) curve to
shift to the right by more than it otherwise would, raising the level of real GDP and the price level.
To fight rising inflation, the government can
decrease government purchases or raise taxes
contractionary fiscal policy causes the aggregate demand curve to…
shift to the right by less than it otherwise would, reducing the increase in real GDP and the price level.
Autonomous expenditure is
expenditure that does not depend on the level of real GDP.
Induced expenditure is
expenditure that depends on the level of real GDP.