Fiscal Policy - Contractionary vs Expansionary Flashcards
What does the government decide on to do with the fiscal policy (demand-side)
spending, borrowing and taxation - to influence supply and demand in economy
What are the two ways (two graphs) in how they influence supply and demand
expansionary policy (increasing total demand)
contractionary policy (decreasing total demand)
What is a budget deficit
when spending is greater than income
What is a budget surplus
when spending is less than income
What is national debt
accumulation of budget deficitis
Why might the government enforce a contractionary policy
reduce inflation or improve budget deficit
How might the government enforce a contractionary policy
decrease spending
increasing taxes
What does the contractionary policy graph look like
demand and supply in equilibrium
demand shifts inwards causing decrease in price and income
What is the negative of the contractionary policy
lowers economic growth
Why might the government enforce an expansionary policy
stimulate economic growth
How might the government enforce an expansionary policy
increase spending
OR
reduce taxes
What does the expansionary policy graph look like
demand and supply in equilibrium
demand shifts outwards causing increase in price and income
What is the negative of an expansionary policy
could cause demand-pull inflation
