Fiscal Policy and Loanable Funds

Vocabulary flashcards covering key concepts from the lecture on Fiscal Policy and Loanable Funds.

Fiscal Policy

Government adjustments in spending and taxation to influence the economy.

Crowding-out Effect

A situation in which increased government spending leads to a reduction in private sector investment.

Loanable Funds Market

The market where savers supply funds for loans to borrowers.

Equilibrium Interest Rate

The interest rate at which the quantity of loanable funds demanded equals the quantity supplied.

Expansionary Fiscal Policy

Policy that involves increasing government spending or decreasing taxes to stimulate economic activity.

Contractionary Fiscal Policy

Policy that involves decreasing government spending or increasing taxes to reduce economic activity.

Laffer Curve

A theoretical representation of the relationship between tax rates and tax revenue.

Inside Lag

The delay between the recognition of an economic issue and the implementation of a solution.

Outside Lag

The delay between the implementation of a policy and its visible effects on the economy.

Political Motivation

The influence of electoral considerations that can lead to biased fiscal policy decisions.

Demand for Loanable Funds

The total amount of money that households and firms want to borrow for investment projects.

Supply of Loanable Funds

The total amount of money available for borrowing from savers.

Inefficient Allocation of Resources

A mismatch between resource distribution and the optimal market choices.

Gross Private Investment (Ig)

The total amount of money that businesses invest in capital goods.

Real Interest Rate (r%)

The interest rate that has been adjusted for inflation.

Budget Deficit

A financial situation in which expenditures exceed revenue.

Budget Surplus

A financial situation in which revenue exceeds expenditures.