Fiscal Policy1

A set of vocabulary flashcards covering key economic concepts related to fiscal policy, government spending, and their effects on GDP.

Fiscal Policy

Government efforts to adjust taxes, transfer payments, and government spending in order to achieve full employment and low inflation.

Monetary Policy

The process by which the Federal Reserve influences GDP, unemployment, and inflation by changing the money supply.

Disposable Income

Income available to an individual after taxes have been deducted.

Government Spending Multiplier

An economic factor that quantifies the change in economic activity resulting from an initial change in government spending.

Marginal Propensity to Consume (MPC)

The proportion of additional income that a consumer spends on consumption rather than saving.

Impact of Taxes on Consumption

Changes in taxes affect disposable income, which in turn influences consumption as represented in the equation C = A + (Y - T) × MPC.

GDP Equation

The equation Y = C + I + G + NX describes how Gross Domestic Product (GDP) is determined by consumption, investment, government spending, and net exports.