Ch 18 - Fiscal Policy

Expansionary Fiscal Policy

is increasing government spending and /or decreasing tax collections in order to stimulate the macroeconomy.

Marginal Propensity to Save (MPS)

given an extra dollar, how much of it is saved.

Automatic Stabilizers

are government policies already in place that promote deficit spending during recessions and surplus budgets during expansions.

Contractionary Fiscal Policy

is the appropriate method to remedy inflation.

Government spending

leads to extra income for firms.

GDP

The shortfall of real ________ from its full employment potential is known as the recessionary gap, which is shown in panel A from Y1 to Yp.

aggregate demand

Crowding out is reflected in a(n) ________ curve that shifts back to the left after a fiscal policy has just shifted to the right.

Fiscal policy

is changing the level of government spending or tax revenues to achieve economic stability.

appropriate fiscal policy

Higher taxes are the ________ to fight inflation.

Inflationary gap

the surefit of real GDP over its full- employment potential.

The federal government

increases spending or reduced tax collections, which increases aggregate demand.

Treasury Security

a financial instrument that allows the federal government to borrow funds.

Treasury Bond

a loan which has the duration of 6- 30 years.

Federal Surplus

occurs when tax revenues exceed government spending.

Treasury Bill

a loan which has the duration of a year or less.

Federal Deficit

occurs when government spending exceeds tax revenues.

Treasury Note

a loan which has the duration of 1- 5 years.

Marginal Propensity to Consume (MPC)

given an extra dollar, how much of it will be spent.

Contractionary fiscal policy

is decreasing government spending and /or increasing tax collections in order to cool off the economy and lower the price level.

aggregate demand

A decrease in government spending of any amount, matched by a tax decrease, creates a decrease in ________ of that amount.

expansionary fiscal policy

The decrease in investment spending by businesses can offset the governments ________.

federal government

The ________ runs a surplus when tax revenues exceed government expenditures.

government spending

Cuts in ________ are the appropriate fiscal policy to fight inflation.

Aggregate demand

In the Long- run adjustment to a recessionary gap, the ________ and Aggregate supply curves convey an economy where the market is producing below its potential.

Fiscal policy

is changing the level of government spending or tax revenues to achieve economic stability

Expansionary Fiscal Policy

is increasing government spending and/or decreasing tax collections in order to stimulate the macroeconomy

Deficit Spending

when federal government expenditures exceed tax revenues

Contractionary fiscal policy

is decreasing government spending and/or increasing tax collections in order to cool off the economy and lower the price level

Inflationary gap

the surefit of real GDP over its full-employment potential

Crowding out

is the increase in interest rates and subsequent decline in spending that occur when government borrows money to finance a deficit

Marginal Propensity to Consume (MPC)

given an extra dollar, how much of it will be spent

Marginal Propensity to Save (MPS)

given an extra dollar, how much of it is saved

Balanced budget move

when a governments budget remains balanced with spending and tax collections, if spending increases, taxes increase as well

Automatic Stabilizers

are government policies already in place that promote deficit spending during recessions and surplus budgets during expansions

Federal Surplus

occurs when tax revenues exceed government spending

Federal Deficit

occurs when government spending exceeds tax revenues

Federal Debt

When national government spending exceeds tax revenues

Treasury Security

a financial instrument that allows the federal government to borrow funds

Treasury Bill

a loan which has the duration of a year or less

Treasury Note

a loan which has the duration of 1-5 years

Treasury Bond

a loan which has the duration of 6-30 years