Fiscal Policy 3

These flashcards cover key concepts regarding crowding out and its implications on fiscal policy and economic indicators.

Crowding Out

A situation where government spending leads to reduced private sector spending.

Long Run Aggregate Supply

Determined by workers, capital, and productivity within an economy.

Net Effect on GDP

The overall impact on Gross Domestic Product, which can be approximately zero when government spending replaces private production.

Financial Crowding Out

Occurs when government borrowing raises interest rates, thereby reducing private investment.

Loanable Funds Market

A market where the demand for and supply of money available for borrowing is determined.

Multiplier Effect

The impact of government spending on increasing gross domestic product; higher with unused resources.

Expansionary Fiscal Policy

Government policy aimed at increasing economic activity through higher spending or tax cuts.

Marginal Propensity to Consume (MPC)

The fraction of additional income that a household consumes rather than saves.

Investment Demand Curve

Graphically represents the relationship between the quantity of investment and interest rates.

Aggregate Demand

The total demand for goods and services within a particular market.