Chapter 16 - Fiscal Policy

Front 1

Expansionary fiscal policy

Back 1

when the government increases spending or decreases taxes to stimulate the economy toward expansion

Front 2

Contractionary fiscal policy

Back 2

when the government decreases spending or increases taxes to slow economic expansion

Front 3

Countercyclical fiscal policy

Back 3

fiscal policy that seeks to counteract business-cycle fluctuations

Front 4

Marginal propensity to consume (MPC)

Back 4

the portion of additional income that is spent on consumption

Front 5

Spending multiplier (m^s)

Back 5

a formula to determine the total impact on spending from an initial change of a given amount

m^s = 1/(1-MPC)

Front 6

Automatic stabilizers

Back 6

government programs that automatically implement countercyclical fiscal policy in response to economic conditions

Front 7

Crowding-out

Back 7

occurs when private spending falls in response to increases in government spending

Front 8

New classical critique of fiscal policy

Back 8

asserts that increases in government spending & decreases in taxes are largely offset by increases in savings

Front 9

Supply-side fiscal policy

Back 9

involves the use of government spending & taxes to affect the production (supply) side of the economy

Front 10

Laffer curve

Back 10

an illustration of the relationship between tax rates & tax revenues