ECON 12 14 15

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  1. What is Fiscal Policy?
    the federal govts use of taxes and govt spending to affect the economy
  2. Expansionary Fiscal Policy
    a plan to increase aggregate demand and stimulate a weak economy
  3. contractionary fiscal policy
    a plan to reduce aggregate demand and slow the economy in a period of too rapid expansion
  4. automatic stabilizers
    • public transfer payments: unemployment, food stamps
    • progressive income taxes
  5. Limitations of Fiscal Policy
    • Policy Lags: getting congress to move on issue
    • Timing Issues
    • Rational Expectations Theory: ind and firms expect that changes in fiscal policy will have particular outcomes and take action
    • Political Issues
    • Regional Issues
  6. Keynesian economics
    the idea that in times of recession aggregate demand needs to be stimulated by govt action
  7. demand side fiscal policy
    fiscal policy to stimulate aggregate demand
  8. Keynesian theory
    • GDP=C+I+G+F
    • C-consumer goods, I- investment goods, G-government goods, F-net exports
  9. Role of govt in Keynesian
    fed govt step in when the economy is using expansionary fiscal policy to promote full employment

    when inflation is high the govt should use contractionary fiscal policy to keep prices from rising
  10. Demand Side Policies
    • an increase in govt spending can lead to economic recovery
    • excessive aggregate demand can lead to inflation
  11. Supply Side Fiscal Policy
    • -cutting costs of production to encourage producers to supply more
    • -favor cutting taxes, cuts in spending
  12. Laffer Curve
    • a graph to illustrate how tax cuts affect tax revenues and economic growth
    • the higher the tax rate, the likelier it is that people will take some type of action to avoid paying more taxes
  13. budget surplus
    the govt takes in more than it spends
  14. budget deficit
    when the govt spends more than it takes it
  15. deficit spending
    a govt spends more than it collects in revenue for a specific budget year
  16. Causes of Deficit
    • national emergencies
    • need for public goods/services
    • stabilization of the economy
    • role of govt in society
  17. treasury bills
    short term bonds (1 year)
  18. treasury notes
    2-10 years
  19. treasury bonds
    for 30 years
  20. crowding out effect
    when the govt outbids private bond interest rates to gain loanable fund
  21. criteria for taxation
    • equity-fairness
    • simplicity
    • efficiency - achieves goal
  22. sales tax
    tax based on the value of designated goods/services at the time of sale
  23. property tax
    tax based on value of ind or businesses assets
  24. proportional tax
    takes the same percentage of income from all taxpayers
  25. progressive tax
    places a higher percentage rate of taxation on high income earners than low

    ex federal income tax
  26. regressive
    high tax on low income

    ex property taxes
  27. impact of taxes on the economy
    • resource allocation: increase costs of production and therefore shift the supply curve left
    • productivity and growth: high interest rate on taxes people save less
    • economic behavior: tax incentive and sin taxes
  28. estate tax
    tax on property that is transferred to others on death of owner
  29. gift tax
    tax on money or property given by one living person to another
  30. excise tax
    tax on the production or sale of a specific product

    ex gas or telephone service
  31. customs duty
    tax on goods imported into the US
  32. user fee
    money charged for the use of a good/service
  33. entitilements
    • social security
    • medicare
    • medicaid
    • food stamps, unemployment
  34. balanced budget
    total govt revenue from all sources is equal to total govt spending
  35. operating budget
    a plan for day to day expenses
  36. capital budget
    a plan for major expenses or investments
  37. national income accounting
    statistical measures that track the income spending and output of a nation
  38. components of GDP
    • GDP=C+I+G+X
    • consumption
    • investment
    • government spending
    • net exports-foreign trade
  39. nominal GDP
    price levels for the year in which the GDP was measured
  40. real GDP
    nominal GDP adjusted for changes in prices.
  41. business cycle
    • 1. expansion- easy to find jobs, more resources are needed (1991-2000)
    • 2. Peak
    • 3. Contraction-recession, depression bc producers cut back bc less resources available
    • 4. trough
  42. aggregate demand
    total amount of goods/services that households, busineses, govt, foregin purchasers wil buy at each and every price level
  43. aggregate supply
    is the total amount of goods and services that producers will provide at each price level
  44. macroeconomic equillibrium
    when the quantity of aggregate demand equals the quantity of aggregate supply the economy reaches this
  45. Why do business cycles occur
    • 1. Business decisions: Demand slump, new technology
    • 2. changes in interest rates
    • 3. consumer expectations
    • 4. external issues
Card Set:
ECON 12 14 15
2011-05-25 03:35:13

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