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25 Cards in this Set
- Front
- Back
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Define fiscal policy |
The use of government spending and taxes to stimulate aggregate demand |
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What is social insurance |
Government programs intended to protect families against economic hardship |
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Define expansionary fiscal policy |
Fiscal policy that increases aggregate demand and is implemented by an increase in government spending, a cut in taxes, an increase in government transfers |
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Define contractionary fiscal policy |
Fiscal policy that reduces the aggregate demand and is implemented by reduction in government spending, increases in taxes, reduction in government transfers |
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What are the three main arguments against the use of expansionary fiscal policy |
Government spending always crowds out private spending Government borrowing always crowds out private investment spending Government budget deficits lead to reduced private spending |
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What are the lags in fiscal policy |
It takes time to collect and analyze economic data to conclude a recessionary or inflationary Gap exists, it takes time for a government to develop a spending plan, it takes time to implement the plan or spend the money |
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What three forms can fiscal policy take |
Increased government spending, increased transfer payments, and tax cuts |
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What form did The Recovery Act take |
It took four forms, infrastructure, transfer payments, tax cuts, transfers to State and local governments. The fourth category was needed because of multiple levels of government |
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What kind of effect does fiscal policy have on the economy |
Multiplier effect. The multiplier is the ratio of the total change of real GDP caused by an autonomous change in aggregate spending to the size of the autonomous change |
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What does MPC stand for and what is the equation for it |
Marginal propensity to consume. Sum of consumer spending/The Sum Of disposable income |
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What are lump sum taxes |
Texas that do not depend on the taxpayer's income |
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What are automatic stabilizers |
Government spending and Taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary when the economy expands |
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What is discretionary fiscal policy |
Fiscal policy that is the result of deliberate actions by policymakers rather than rules |
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What do expansion RI fiscal policies do to the budget |
They make a budget surplus smaller or a budget deficit bigger |
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What do contractionary fiscal policies do to the budget |
The increase the budget balance for that year, making a budget surplus bigger or a budget deficit smaller |
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What are examples of discretionary expansionary fiscal policy |
Increase government purchases of goods and services, higher government transfers, or lower taxes |
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What are some examples of contractionary fiscal policies |
Reduce government purchases of goods and Services, Lower government transfers, or higher taxes |
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What is cyclically-adjusted budget balance and why was it used |
It is an estimate of what the budget balance would be if the economy were at potential output. It was used in order to separate the effects of the business cycle from the effects of the discretionary fiscal policy |
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On what basis is the US government budget accounting calculated on |
Fiscal years |
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What is a fiscal year |
From October 1st to September 30th and is labeled according to the calendar year in which it ends |
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Define deficit |
The difference between the amount of money a government spends and the amount received in taxes over a given. |
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Define debt |
The sum of money government owes at a particular point in time |
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Why are deficits and depth linked. |
Because government debt grows when governments run deficits |
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What are some problems posed by Rising government debt |
Public debt a crowd out private investment spending which reduces long-run economic growth It may lead to government default resulting in economic and financial turmoil |
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What are implicit liabilities |
Spending promises made by governments that are effectively a debt despite the fact that they are not included in the usual debt statistics |
