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  1. Fiscal
    policy
    • use of taxes,
    • government transfers, or government purchases of goods and services to shift
    • the aggregate demand curve.








  2. Expansionary
    fiscal policy








    • increases aggregate
    • demand and


    • Can
    • Close a Recessionary Gap



  3. Contractionary
    Fiscal Policy

    • Eliminate

    • an Inflationary Gap and

    • reduces aggregate
    • demand.



















  4. A Cautionary Note: Lags
    in Fiscal Policy












    true because it all takes time



  5. multiplier on changes in government purchases
    • 1/(1 − MPC)



  6. multiplier on changes in taxes or transfers
    • MPC/(1 − MPC) and are less effective because part is absorbed into savings



  7. Lump-sum
    taxes
    • taxes that don’t
    • depend on the taxpayer’s income



  8. automatic stabilizers
    • reducing the size of the multiplier and
    • automatically reducing the size of fluctuations in the business cycle and include taxes and transfers



  9. cyclically adjusted budget
    balance
    • separate the effects of the business cycle
    • from the effects of discretionary fiscal policy, governments estimate



  10. budget deficit as a
    percentage of GDP tends to rise during recessions
    true



  11. budget deficit as a
    percentage of GDP moves closely in tandem with the unemployment rate.
    true



  12. fiscal year
    • from October 1 to September 30








  13. Implicit liabilities










    • §spending promises made by
    • governments that are effectively a debt despite the fact that they are not
    • included in the usual debt statistics.



  14. aggregate demand
    increases
    • consumers and firms
    • become more optimistic,

    • the real value of
    • household assets rises,

    • existing stock of
    • physical capital is relatively small,

    • government increases
    • spending or cuts taxes, or

    • increases the
    • quantity of money



  15. movement along the AD curve
    • occurs when a change in the aggregate price
    • level changes the purchasing power of consumers’ existing wealth



  16. short-run aggregate supply
    curve     is upward-sloping
    • because nominal wages are sticky in the short
    • run:



  17. nominal wage
    • dollar amount of the wage paid.



  18. Sticky wages
    • nominal wages that are slow to fall even in
    • the face of high unemployment and slow to rise even in the face of labor
    • shortages



  19. short-run aggregate
    supply increases
    • commodity prices fall,

    • If nominal wages fall,

    • If workers become
    • more productive



  20. long-run aggregate supply
    curve
    • , including nominal wages, were fully
    • flexible.



  21. a recessionary gap
    • aggregate output is below potential output.



  22. output gap
    • percentage difference between actual
    • aggregate output and potential output.
Author
sberninghaus3
ID
22293
Card Set
hopeful
Description
hopeful
Updated

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