Fiscal Policy Flashcards

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1
Q

What is “Fiscal Policy”?

A

The use of taxes and government spending to affect the level of aggregate expenditures (i.e., economic demand).

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2
Q

What is “Monetary Policy”?

A

Actions taken by the nation’s central bank to affect aggregate output and prices through changes in bank reserves, reserve requirements, or its target interest rate.

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3
Q

What is a “Structural Budget Deficit”?

A

Also known as “cyclically-adjusted budget deficit”.

Definition: The deficit that would exist if the economy was at full employment (or full output potential).

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4
Q

What is a Budget Surplus/Deficit?

A

The difference between government revenue and expenditure for a stated period of time.

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5
Q

What is “Expansionary” policy?

A

Policy that tends to cause the real economy to grow.

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6
Q

What are “Keynesians”?

A

Economists who believe that fiscal policy can have powerful effects on aggregate demand, output, and employment when there is substantial spare capacity in the economy.

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7
Q

What are “Monetarists”?

A

Economists who believe that the rate of growth of the money supply is the primary determinate of the rate of inflation.

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8
Q

What is “Economic Stabilization”?

A

A reduction of the magnitude of economic fluctuations.

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9
Q

What is “Expansionary Fiscal Policy”?

A

Fiscal policy aimed at achieving real economic growth.

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10
Q

What is “Contractionary Fiscal Policy”?

A

A fiscal policy that has the objective to make the real economy contract.

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11
Q

What is an “Automatic Stabilizer”?

A

A countercyclical factor that automatically comes into play as an economy slows and unemployment rises.

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12
Q

What is a “balanced” budget?

A

when revenues (taxes) = spending (expenditures)

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13
Q

What are “Transfer Payments”?

A

Welfare payments made through the social security system that exist to provide a basic minimum level of income for low-income households.

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14
Q

What is “Current” government spending?

A

(With respect to government expenditures) Spending on goods and services that are provided on a regular, recurring basis, such as health, education, and defense.

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15
Q

What is Capital Expenditure?

A

Expenditure on Physical Capital (Fixed Assets).

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16
Q

What are “Direct Taxes”?

A

Taxes levied directly on income, wealth, and corporate profits.

17
Q

What are “Indirect Taxes”?

A

Taxes such as sales tax.

18
Q

What is the “Net Tax Rate”?

A

The tax rate on net transfer payments.

19
Q

What is a “Fiscal Multiplier”?

A

The ratio of change in national income to a change in government spending.

20
Q

What is the “Marginal Propensity to Consume”?

A

The proportion of an additional unit of disposable income that is consumed or spent.

The change in consumption for a small change in income.

21
Q

What is the “Marginal Propensity to Save”?

A

The proportion of an additional unit of disposable income that is saved (not spent).

22
Q

What is a “Household”?

A

A person or a group of people living in the same residence, taken as a basic unit in economic analysis.

23
Q

What is “Ricardian Equivalence”?

A

An economic theory that implies that it makes no difference whether a government finances a deficit by increasing taxes or issuing debt.

24
Q

What is a “Recognition Lag”?

A

The lag in government response to an economic problem resulting from the delay in confirming a chance in the state of the economy.

25
Q

What is “Action Lag”?

A

The delay from policy decisions to implementation.

26
Q

What is “Impact Lag”?

A

The lag associated with the result of actions affecting the economy with delay.