Fiscal Policy

Question 1

Discretionary

Answer 1

Government intentionally changing spending or taxes to influence economy
-Donald Trumps tax cuts for rich ppl

Question 2

Automatic

Answer 2

Automatically adjust government spending and taxation in response to economic fluctuations, legislation usually not needed.
-increase in state welfare benefits when unemployment is rising

Question 3

Expansionary Fiscal Policy

Answer 3

Increases government spending and decreases taxes
-Used during recessions
-Shifts labor demand curve to the right
-Increase economic growth and increase employment

Question 4

Contractionary Fiscal Policy

Answer 4

Decrease government spending and increases taxes
-Reduce inflation
-Shift labor demand curve to the left
-Slows down economy so it doesn’t grow too fast

Question 5

Countercyclical policies

Answer 5

-Reduce the intensity of economic fluctuations
-Smooth the growth rates of employment,GDP,and prices

Question 6

Crowding Out

Answer 6

Increased government spending or borrowing, leads to a decrease in private sector spending.(Due to higher interest rates and reduced availability of loan funds)