The Role of Government in Managing the Economy

These flashcards cover key concepts and details related to the role of government in managing the economy, drawing from lecture content.

What do Classical Economists believe about markets?

Markets are self-regulating and require minimal government intervention.

What is Say's Law?

Supply creates its own demand.

What is the key belief of Keynesian Economists?

Government intervention is necessary to boost demand, especially during economic downturns.

What is fiscal policy?

Fiscal policy seeks to control aggregate demand by altering government spending and taxation.

Define a fiscal mandate.

A set of rules or targets set by a government to guide fiscal policy and ensure responsible public finances.

What is a budget deficit?

When government spending exceeds tax revenue.

What does the term 'crowding out' refer to in economics?

When increased government spending leads to a reduction in private sector spending or investment.

What is the multiplier effect?

When government spending creates income for recipients who then spend it, creating further income for others.

What are automatic stabilizers?

Economic policies and programs that automatically help stabilize an economy, such as unemployment benefits.

What are discretionary fiscal policies?

Intentional government actions to influence the economy through spending or taxation.

What is the structural deficit?

The long-term gap between income and spending, indicating overspending.

What role does the Phillips Curve play in economics?

It illustrates the inverse relationship between inflation and unemployment.

How does the economy react to an increase in aggregate demand according to Keynesian theory?

It can lead to inflationary increases in prices.

What does 'sustainable public finances' mean?

A situation where the government's financial position is stable and not leading to increasing debt levels.

Define cyclically adjusted balances.

The government's true financial position adjusted for temporary effects of economic cycles.

What is the effect of random shocks on fiscal policy?

They can unexpectedly alter the economy, making it difficult to predict the outcomes of fiscal initiatives.

What is an example of a discretionary fiscal policy?

Increasing government spending to stimulate demand during a recession.

What does a debt-to-GDP ratio indicate?

The amount of a country's debt compared to its gross domestic product, reflecting its financial health.

What are inside and outside lags in fiscal policy?

Inside lags are the delays in recognizing problems and making decisions, while outside lags are delays in seeing the impact of policy implementation.

What is a budget surplus?

When tax revenue exceeds government spending.