Fiscal Policy

Question 1

Stabilisation Policies

Answer 1

Government or central bank policies that are used to affect planned aggregate expenditure, with the objective of eliminating output gaps.

Question 2

Expansionary Policies

Answer 2

Policy actions intended to increase planned spending and output. This policy actions are intended to close the recessionary gap.

Question 3

Contractionary Policies

Answer 3

Policy actions intended to close the expansionary gap by reducing planned spending.

Question 4

Fiscal Policy

Answer 4

• Changes in the government budget

Question 5

Monetary Policy

Answer 5

• Changes in the interest rate

Question 6

Discretionary Fiscal Policy

Answer 6

Government decisions to change:

• Government Spending (G)
• Net Taxes (T)

Question 7

Two limits to fiscal policy flexibility:

Answer 7

1. The problem of time lags and the legislative process

2. Competing political objectives