Fiscal Policy

Question 1

Automatic Stabilizers

Answer 1

Structural (automatic) features of gov spending and taxes that reduce fluctuation. Includes income tax, welfare

Question 2

Discretionary Fiscal Policy

Answer 2

The deliberate manipulation of government purchases taxation, and transfer payments.

Question 3

Simple Tax Multiplier

Answer 3

-MPC/(1-MPC)

Used to figure out how a change in taxes impacts rgdp

Question 4

Expansionary Fiscal Policy

Answer 4

An increase in gov purchases, reduction in taxes (or both) in an attempt to increase demand to re-stimulate the economy.

Question 5

Contractionary Fiscal Policy

Answer 5

A decrease in government purchases or increase in net taxes (or both) in an effort to return the economy to potential output without worsening inflation

Question 6

Classical Economists

Answer 6

Believed that economy was self correcting. No need for gov to intervene.

Question 7

Permanent Income

Answer 7

Income that lasts on average on the long run.