Key Terms

Question 1

What does propensity mean?

Answer 1

Tendency

Question 2

Fiscal policy

Answer 2

Taxation and spending decision of the government designed to increase and decrease AD

Question 3

Monetary policy

Answer 3

Central banks decision on the rate if interest, the supply of money and the exchange rates. Government have objectives and central banks try to achieve them. Affects AD

Question 4

Supply-side policy

Answer 4

Policy designed to increase AS by improving the efficiency of labour and product markets