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16 Cards in this Set
- Front
- Back
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What is Fiscal Policy? |
Deliberate changes in government spending and/or taxes |
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What is intended when using Fiscal Policy? |
Achieve full employment, control inflation, and encourage economic growth |
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When and how is Expansionary Fiscal Policy used? |
It is used during a recession/high unemployment, and either government spending is increased, taxes are decreased, or a bit of both. |
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When and how is Contractionary Fiscal Policy used? |
Used during Demand-Pull inflation, and either taxes are increased, government spending is decreased, or a bit of both. |
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What is the Multiplier Effect? |
Change in Real GDP ÷ Initial Change in Spending |
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What is Built-In Stability? |
Features of the economic system designed to minimize fluctuation. (Welfare, Graduated Income Tax, etc.) |
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What are the 3 types of lag in Fiscal Policy? |
Recognition Lag - The time between the beginning of a recession and the realization that it's happening Administrative Lag - The time between the point of recognition and when it is decided what course of action the government will take Operational Lag - The time between when the government implements their policy and the point when it actually takes effect |
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What is a Political Business Cycle? |
Shifts in economic activity and GDP from various elections |
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What are Securities? |
Bills, bank notes, bonds, and other investment tools used to enhance spending capability |
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What is the current thinking on Fiscal Policy? |
The Federal Reserve should handle short term fluctuations, while fiscal policy should be implemented for long term issues. |
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What is Monetary Policy? |
The central bank changing and controlling the money supply in order to influence interest rates. |
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What is the difference between discretionary and non discretionary fiscal policy? |
Discretionary requires action to be taken by some form of regulatory force, such as a cut in government spending, while a non discretionary effect is built into the economic system itself. |
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What is the burden of debt? |
The debt of a country, when it has become large enough that servicing it is difficult. |
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What are common criticisms of Fiscal Policy? |
Lag, changes in policy, the Crowding Out Effect, states being required to present a balanced budget |
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What is the Crowding Out Effect? |
When an increase in interest rates stifles private investments, and dampens the initial increase of total investment spending. |
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What is the difference between Keynesian and Classical theories of Fiscal Policy? |
Keynesian theory argues that the government should act as a regulatory force, whereas the Classical theory argues that the economy can self-regulate, and should go on untouched. |
