ECON - Ch. 15 - Fiscal Policy

Who was the economist that developed the concept of Fiscal theory?

John Maynard Kaynes

According to proponents of fiscal policy, what two steps should be taken in periods of economic decline?

Increase government spending, government increases and consumer spending by lowering taxes

What economy term is the portion of each dollar that the average person chooses to spend?

MPC (marginal propensity to consume)

What 4 problems are associated with using governmental spending as a tool of fiscal policy?

Procrastination from politicians, debate/political maneuvering, solution may not match problem, uncertain multiplier

Ways government influences demand:

Lowering taxes + spending and borrowing

Greatest source of tax revenue for the government?

Personal income tax

Which type of tax has all people pay the same percentage of earnings?

Proportional tax

Which tax takes more from those with bigger income?

Progressive tax

Which tax takes smaller percentage of one's income as it increases?

Regressive tax

What are two problems with using tax as a tool in fiscal policy?

Effect on national work ethic

Confusion in marketplace

MPC formula?

Amount spent / amount received