[MACRO] 05 - The Government and Fiscal Policy Flashcards

1
Q

Definition: Fiscal Policy

A

The governments spending and taxing policies. They always case a direct effect in the goods and services market.

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2
Q

Definition: Monetary Policy

A

The behaviour of the Federal Reserve concerning the nation’s money supply.

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3
Q

Definition: Net Taxes (T)

A

Sum of taxes paid by firms and households to the gov. minus transfer payments made to households by the gov.

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4
Q

Definition: Disposable Income

A

Income - Taxes

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5
Q

Nature of Government Budget

A

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.

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6
Q

Definition: Budget Deficit

A

The difference between what a government spends and what it collects in taxes in a given period.

G - T

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7
Q

Definition: Crowding out Effect

A

As a result of an increase in income and interest rates, firm investment will decrease (will be crowded out).

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8
Q

Definition: Expansionary Fiscal Policy

A

A policy that increases Government spending or reduces tax rates.

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9
Q

Definition: Contractionary Fiscal Policy

A

A policy that reduces Government spending ro increases tax rates.

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