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26 Cards in this Set
- Front
- Back
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built- in stabilizers |
goverment spending and taxation, which automatically change to offset undersirable changes in the GDP thereby reducing the multiplier effect of spending changes. also called automatic stabilizers |
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government Debt |
the total amount of goverment owes |
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government deficit |
excess of government spending over taxes colected |
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goverment surplus |
the excess of taxes over government spending |
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marginal tax trade |
amount of taxes paid on the last dollar of income earned |
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tax multiplier |
number that a tax change must be multiplied by to get the resulting changing in GDP. A tax multiplier of -5 implies that a 200 increase in taxes will reduce GDP by 1000 |
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getting out of recession by |
stimulating the economy by increasing aggregated demand |
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fiscal policy |
changing goverment spending and taxation |
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government spending |
has the same effect as investment spending and same spending multiplier |
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spending multiplier |
spending multiplier = 1/1-mpc |
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tax multiplier |
= -mpc x spending multiplier |
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spending multiplier |
when taxes goes up with income, the spending multiplier will be smaller |
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supply-side economics |
people supply less labor, capital and other factors when tax increase |
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marginal revenue decision |
the decision to supply more or less is determined by this |
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Marginal Tax goes up |
aggregated supply decreases, shifting left. the average tax rate does not matter |
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when taxes decrease |
aggregated demand and aggregated supply increase. |
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if the government lowered marginal tax rate but left the the average tax rate the same |
aggregated supply shift out and right, but aggregated demand would not shift |
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higher tax rate |
GDP falls by more than the tax rate increase, so total tax revenue falls. |
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active fiscal policy |
is weakened when its effect are uncertain in timing and degree |
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government spending is financed by |
taxes or by the government barrowing money to cover deficit |
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when government deficit goes up when the economy is fully employed |
the either private investment must go down and savings go up or the trade deficit (-nx) go up. |
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crowding-out |
private investment (i will go down) or by barrowing form foreigner) which shows up a higher trade deficit. |
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monetize the debt |
another way to finance the deficit printing more money- leads to inflation, with all its social costs |
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deficit help the economy if |
lower taxes cause GDP to expand |
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deficit harms the economy |
do no stimulate the economy and do not reduce private investment thereby reducing growth |
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n |
n |
