Chp 10 fiscal policy

Fiscal policy

is changes in government taxes and spending that affect the level of GDP

Expansionary policies

is a government policy action that leads to increases in aggregate demand

contractionary policies

is a government policy actions that lead to decrease in aggregated demand

The Fiscal Multiplier is when 

the government develops policies to stabilize the economy . It takes the multiplier into account . The total shift in aggregate demand will be larger than  the initial shift 

Stabilization policies

are policy actions taken to move the economy closer to full employment

inside lags

The time it takes to formulate a policy

Discretionary spending 

The spending program that Congress authorizes on an annual basis 

Entitlement and Mandatory spending 

is spending that Congress has authorized  by prior law ,primarily  providing support for individuals 

Social Security

is A federal government program

Medicare

is a federal and state government health program for the elderly

Medicaid

A federal and state government health program for the poor

supply side economics 

A school  of thought that emphasizes the role  that taxes play in the supply of output in economy  

Laffer curve

A relationship between the tax rates and revenues that illustrates high taxes could lead to lower tax revenues if economic activity is severely discouraged

Budget deficit

The amount by which government spending exceeds revenues in a given year

Budget surplus

the amount by which  government  revenues exceed government expenditures in a given year 

Automatic stabilizers

is Taxes and transfer payments that stabilize GDP without requiring policy makers to take action

The Increased Federal budget deficit works to stabilize the economy through three channels

1Increased Transfer payments such as unemployment , insurance, food stamps and other welfare payments 2increase the income of some households by partly offsetting the fall in household income . 3 Corporation tax -  depends on corporate profits and profits fall in a recession , Taxes on  business also fall

outside lags

The time it takes for the policy to actually work