Fiscal Policy - ECON 101 Notes

These flashcards cover key concepts related to fiscal policy, its mechanisms, types, and implications in macroeconomic context.

Fiscal Policy

Changes in federal taxes and purchases intended to achieve macroeconomic objectives.

Automatic Stabilizers

Government spending and taxes that automatically increase or decrease with the business cycle, without new legislation.

Discretionary Fiscal Policy

Intentional actions taken by the government to change spending or taxes.

Expansionary Fiscal Policy

Increasing government purchases or decreasing taxes to stimulate economic activity.

Contractionary Fiscal Policy

Decreasing government purchases or increasing taxes to reduce inflationary pressures.

Multiplier Effect

The process where an initial change in autonomous spending leads to a larger change in equilibrium real GDP.

Crowding Out

A decline in private expenditures as a result of an increase in government purchases.

Budget Deficit

Occurs when government expenditures exceed tax revenues.

Budget Surplus

Occurs when government expenditures are less than tax revenues.

Tax Wedge

The gap between the pre-tax and post-tax return to an economic activity.

Supply-Side Economics

Fiscal policy aimed at increasing long-run aggregate supply by changing taxes or regulations.

Tax Multiplier

The ratio that describes the change in equilibrium real GDP caused by a change in taxes.

Balanced-Budget Multiplier

A multiplier effect resulting from equal increases in government spending and tax revenue that leads to the same dollar increase in real GDP.