Fiscal Policy Flashcards
Discretionary v. No discretionary
Changes in govt. spending and taxes in hands of federal government
As dove or automatic changes
When recession and cyclical unemployment occurs what policy is used
Expansionary fiscal policy
Increase in G causes: increase in AD increase in employment increase in price level increase in interest rate
Decrease in T causes: increase in disposable income and consumption
What does expansionary create
Budget defecit : government spending in excess of tax revenues
Combined tax and government spending
Produce initial increase in spending and later increase in GDP ADN AD
Contraction ask fiscal policy is used when
Demand pull inflation, deals with vertical section of aggregate supply
What do you do in contraction ask
Decrease g: decrease in AD, decrease in employment, decrease in of, decrease in interest rates
Increase in t: decade in di and decrease in c
What does contraction all cause
Budget surplus tax revenues in excess of govern,net spending
Price level goes down, halting price level must halt AD
Financing a defecit
Borrowing from public :government competes for finds with private interest, drive up interest rate and crowd out private investment spending and interest sensitive consumer spending, drop in private investment weakens expansionary effects
Money creation: central banks support deficit spending crowding out avoided, deferral spending increases without affecting consumption, can be inflationary
Dealing with surplus
Debt reduction: paying off debt since fed. Govt. has large
Impounding: withholding purchasing power from economy
Direct relationships between tax receipts and GDP a
When economy moves towards higher GDP tax revenues increase from defecit to surplus
Crowding out effect
Expansionary fiscal policy increase interest rate and reduce private spending thereby weakening stimulus in EXPASNIONARY
Fiscal policy consists of what
Deliberate changes in government spending and taxes to achieve full employment control inflation and encourage economic growth
