fiscal policy II (L18)

Question 1

IS curve equation

Answer 1

a+d/1-b - sd/1-b +G0-bT0/1-b

Question 2

IR curve equation

Answer 2

r=r^CB

Question 3

what does IS show

Answer 3

downward sloping relationship between income and interest rate

Question 4

IR curve shows

Answer 4

fixed rate set by central bank r=r^CB

Question 5

expansionary fiscal policy and its impact

Answer 5

government spending goes up or tax goes down look at diagram, stimulates economy in recessions but leads to budget deficits

Question 6

balance budget policies

Answer 6

increasing output without increasing debt
increase gov spending increases output which increases consumption to increase output again
increase tax decreases consumption and decreases output so the indirect effects cancel out because the g multiplier exceeds the tax multiplier