Monetary and fiscal policy (Chapter 15, 17)

Question 1

fiscal policy

Answer 1

• governments use of its reserve raising and spending activities to influence the macroeconomy

Question 2

automatic stabilizers

Answer 2

• policies which lessen fluctuations in the economy without policy makers having to take any deliberate action

Question 3

social assistance / transfer payments

Answer 3

• absolutely countercyclical

Question 4

discretionary fiscal policy

Answer 4

• deliberate changes in spending or taxation designed to influence the macroeconomy

Question 5

multiplier effect

Answer 5

• the additional shifts in aggregate demand (AD) that results when spending changes in the economy

Question 6

marginal propensity to import (mpg)

Answer 6

• proportion of extra income that consumers decide to spend on imports

Question 7

open economy multiplier

Answer 7

• people may spend additional income on imports

Question 8

tax multiplier

Answer 8

• if people are taxed one less $, they will not spend the whole $

Question 9

closing the output gap

Answer 9

• moving economy to natural rate of economy output (YN)

Question 10

crowding out of net exports

Answer 10

• under flexible XRs, expansionary fiscal policy will boost interest rates which will cause currency appreciation and in turn lowers NX and AD