fiscal policy Flashcards
why are banks relevant
because we rely on them because important to purchase stuff
fiscal policy is
the use of gov spending and taxation to infleunce the economy
expenditures
by govnt
-need labor, creates jobs, stimulates economy
transfer payments
different way to stimulate economy. gov on behlf of citizens choose how to spend money
investment
rare in the US for gov to buy stocks. when a firm, like abnk, are systematically impotrnat to our economy we will
what is the govs primary means of generating revenue
taxation
who sets interest rate
fed, fed setts FFR
how did volker fight inflation
by raising rates crazy
mandatory budgeted expenditures
dictated by prior law and not voted on by congress
mandatory budgeted expenditures ex
medicare
discretionary budgeted expenditures example
national defense and education
interest budgeted expenditures
not productive because citizens font benefit. beneits whoever owns the security
supplemental expenditures are
enacted outside of the orindary appropriations process
supplemental expenditures ex
covid, TARP
when government spends more =
federal expansion
fiscal expansion
increase in discretionary/suplemental spending
fiscal comtraction
decrease in discretionary/supplemental spending
what happens with fiscal contraction
destroy jobs, but at least bring down price level
if most peopple are employed may not use what
fiscal expansion
-would use (-) channel
how does G ingluece C and I positively
HH receive more income and , so they spend more. when people spend more, firms invest more
how does G ingluece C and I negatively
as the govnt increases tax for other resources, it crowds out private consumption and investment
total effect is
direct and indeirect
which effect matters the most
direct effect is leasy important and total is most important
positive indirect effects outweigh the negtive indirect effects is
keynesian hope of amplification
the negetaive indirect effect outweighs the positive indirect effects
(-) overpowers (+) so multiplier is less than 1
do peopple spend each dollar of their stimulus checks
no because they would invest it and use it to repay their debts
what are teh pros and cons of stimulus payments vis-a-vis government expenditures
big benefit of trasnfer payments were no contact and speed
does the US by stocks? why?
no, US gov does not buy stocks b/c it is risky
-tehre have been instances when gov wants to help econpmy or certain firms that are important
-US has invested in 8 big banks
how can you detect a balance sheet that is illiquid
because hsort term debt outweighs money
-ther debt instrument is deposits
-have maturity of zero, but not due
how can you detect a balance sheet that is insolvent
it is a problem, detect it when all its assets are less than its debts
TGA
account with fed treasury has
what happens when gov loers taxes
the government can boost consumer spending and/or capital investment
is aggregate supply or demand easier to impact
demand
two ways to stimilate aggregate supply
labor and labor productivity
why did labor increase in 1950-1980
women entered workforce
what happens if you lower income tax
more incentive to work
what happens if you lower corporate tax
more profitable for firms to hire ppl (labor demand)
how do you stimulate labor
taxes
transmission
tax cut might inc tax income because work more
fiscal space
may limit a govnt ability to spend and/or cut taxes in teh future
laffer curve illustrates
some sort if optimal tax rate that is less than 1. if you tax too much no one will work and at make no money
for laffer curve are they truing to optimize T*
they are not trying tp optimize this, they want to maximize welfare
-dont raise axes oto much
-dec taxes inc income was logic for curve
