Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
33 Cards in this Set
- Front
- Back
|
Fiscal Policy |
Focuses mostly on Congressional economic policy Only involves taxation and spending |
|
|
Mandatory Spending |
Govt spending authorized by permanent laws and does not go through the same process as discretionary spending To change this, Congress must change the law, 2/3 of federal |
|
|
Automatic Stabilizers |
reduce the intensity of business fluctuations |
|
|
Transfer Payments |
money paid directly to individuals |
|
|
Government Spending |
stimulated AD by increasing G |
|
|
Discretionary Spending |
Spending that is not mandated by law It has a short run goal of moving the economy to FE, encouraging growth, or controlling inflation |
|
|
The Balanced Budget Multiplier |
Equal changes in both taxes and government spending causes an equal amount of change in national income |
|
|
Expansionary Fiscal Policy |
involves increasing govt spending, increasing transfer payments in order to increase AD; lowering tax rates. More money ends up in the hands of business/consumers, which should mean increase in spending levels Deficits and crowding out may occur but yolo |
|
|
Countercyclical Fiscal Policy Options |
Two general policy options to control the effects of the business cycle |
|
|
Contractionary Fiscal Policy |
involves reducing govt spending; decreasing transfer payments; raising taxes; politicians hesitate to use this bc it can cost them their job, so they rely on the Fed to use monetary policy to keep inflation in check |
|
|
Supply Side Policies |
-cut taxes/regulation on the wealthy/big business, and they will reinvest those savings into their businesses -AS will increase along with GDP, which means new jobs will be created -In this way the wealth will "trick down to everyone" -Takes longer to work than demand side policies |
|
|
Deficit Spending
|
-spending more than the govt brings in through taxes
-it adds to the national debt |
|
|
Financial Budgets |
congress must raise revenue and decide how to consume that revenue |
|
|
Progressive Taxes |
The more you make the more you will be taxed |
|
|
Proportional Taxes |
everyone pays the same tax rate (based on percentage) |
|
|
Regressive Taxes |
those at the bottom end up paying more |
|
|
Federal Budget Balancing Act |
many worry about the amounting public debt and burden that it will place on future generations |
|
|
Line Item Veto |
allows the president to veto specific items in budget bills instead of rejecting the entire bill |
|
|
Cyclically Balanced Budget |
Balance the budget over the course of a business cycle by restricting spending or raising taxes when the economy is booming and using these surpluses to offset the deficits incurring during recessions |
|
|
Annually Balanced Budget |
Federal spending and taxes would have to be equal each year, however, this undercuts the ability of the govt to respond to fiscal changes |
|
|
Functional Finance |
hold the economy at FE w/ stable prices, if this happens, GDP will, so deficits and surpluses will be unimportant |
|
|
Phillips Curve |
shows the inverse relationship between unemployment and inflation |
|
|
SRPC |
movement along the curve represents year to year fluctuations in the business cycle. SRPC mirrors SRAS curve. |
|
|
LRPC |
occurs at FE and represents the long run situations in which the anticipated inflation rate; it is directly related to LRAS |
|
|
Stagflation |
whenever inflation rates and unemployment rates increase simultaneously |
|
|
Cost-Push Inflation |
-negative supply shock -happens when the resource base of an economy changes |
|
|
Timing Lags |
it takes too long for the govt to act, by the time Congress acts, the economic event may have resolved itself |
|
|
Data Lags |
The time policy makers must wait for economic data to be collected, processed, and reported. Usually takes at least 3 months to get data. |
|
|
Recognition Lags |
The time it takes for policy makers to confirm the economic trends. Short term variations can be misleading. |
|
|
Implementation Lags |
The time it takes for Congress to debate what action to take, pass the appropriate measures, and have them take effect |
|
|
Crowding Out Effect |
-As G increases, the govt drives private interests out of the market -In other words, the govt takes over the private sector's role in the economy |
|
|
Net Export Effect |
As G increases interest rates will increase. As a result, exports will decrease, reducing the positive effect of the expansionary fiscal policy. |
|
|
Employment Act of 1946 |
When the end of the WWII raised anew the specter of unemployment, the Federal government passed this. It commits the Federal government to use all practicable means, consistent with the market system, using monetar and fiscal policy to maintain economic stabiliti |
