Fiscal Policy Flashcards
Define fiscal policy
Government policy regarding government expenditure and taxes
Define stabilisation policy
Action undertaken by government to keep actual and trend output close
Define budget deficit
When government expenditure exceeds tax revenue
Define national debt
Stock of outstanding government debt
What is disposable income with government in economy?
Yd=Y-NT
Define aggregate demand with a government
AD=C(0)+c(Y-NT)+I+G
What is the equilibrium level of output with government
(1/1-c)(C(0)-cNT+I+G)
What is the balanced budget multiplier
If the government increase net taxes and government expenditure by the same amount it will result in an overall increase in AD and therefore output because G flows directly into the economy whereas NT flow indirectly in through the consumption function
What is savings? (with government)
Y-C-NT=I+G-NT
savings finance private investment and the public deficit
Define automatic stabilisers
Mechanisms in the economy that help reduce the change in output in response to an economic shock