[MACRO] 05 - The Government and Fiscal Policy Flashcards
Definition: Fiscal Policy
The governments spending and taxing policies. They always case a direct effect in the goods and services market.
Definition: Monetary Policy
The behaviour of the Federal Reserve concerning the nation’s money supply.
Definition: Net Taxes (T)
Sum of taxes paid by firms and households to the gov. minus transfer payments made to households by the gov.
Definition: Disposable Income
Income - Taxes
Nature of Government Budget
The gov. should always be at a budget deficit, as politicians want to be re-elected, which requires spending more money in order to improve living conditions in the country.
Definition: Budget Deficit
The difference between what a government spends and what it collects in taxes in a given period.
G - T
Definition: Crowding out Effect
As a result of an increase in income and interest rates, firm investment will decrease (will be crowded out).
Definition: Expansionary Fiscal Policy
A policy that increases Government spending or reduces tax rates.
Definition: Contractionary Fiscal Policy
A policy that reduces Government spending ro increases tax rates.