Lecture 15: Fiscal Policy and Demand

Vocabulary flashcards covering the fundamental concepts of countercyclical fiscal policy, automatic and discretionary stabilizers, and theoretical multipliers as presented in the lecture notes.

Fiscal Policy

The act of changing government spending or taxes to achieve a short-run impact on the demand side of the economy, typically for countercyclical purposes.

Discretionary Fiscal Policy

The introduction of new legislation that specifically changes spending or tax levels based on current macroeconomic circumstances.

Automatic Stabilizers

Economic mechanisms, such as unemployment insurance or progressive tax systems, that cause taxes to fall and spending to rise automatically when the economy weakens, without the need for new legislation.

Fiscal Policy Multiplier

The ratio that reflects the direct and indirect effects of fiscal policy on output, expressed mathematically as $\frac{\Delta Y}{\Delta G}$ or $\frac{\Delta Y}{\Delta T}$.

Crowding Out

An indirect effect where increased government borrowing leads to higher real interest rates, which reduces private-sector borrowing for investment and consumption.