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Chapter 13 Econ

Terms in this set (25)

Fiscal policy
Changes government makes in spending or taxation to acheive particular economic goals
Expansionary fiscal policy
Increase in government spending or reduction in taxes
Increase total spending in the economy and lower the unemployment rate
What is the objective of the expansionary fiscal policy?
Contractionary fiscal policy
A decrease in government spending or an increase in taxes
Reduce spending in the economy to reduce inflation
What's is the objective of the contractionary fiscal policy?
Crowding out
Situation in which increases in government spending leads to reductions in private spending
Expansionary fiscal policy
Which fiscal policy is crowding out associated with?
Complete crowding out
What is it called when each dollar increase in government spending is matched by a dollar decrease in private spending?
Incomplete crowding out
When a decrease in private spending only partially offsets the increase in government spending
Crowding in
When decreased in government spending lead to increases in private spending
Contractionary fiscal policy
Crowding in is a result of what policy?
Complete crowding in
For every dollar increase in government spending there is a dollar increase in private spending
Incomplete crowding in
Every dollar decrease in government spending causes a 60 cent increase in private spending is an example of what?
After tax income
Part of income that's left over after taxes are paid
Average tax rate x income
What's the formula for tax revenue
Rise
If income rises more than taxes are cut, tax revenues will...
The laffer curve
Curve that represents the relationship between tax rates and tax revenues
Monetary policy
Changes the Fed makes in the money supply
Expansionary monetary policy
When fed increases money supply in order to tackle unemployment
Contractionary monetary policy
When fed decreases money supply in order to tackle inflation
Because if the fed increases the money supply, no one needs to spend less, there is simply more money to spend
Why is crowding out not a problem with the expansionary monetary policy?
Lowering the reserve requirement, undertaking an open market purchase, or lowering the discount rate
How can the fed increase he money supply (3)
Conducting an open market sale. Buying bonds increases it and selling decreases it
What's the most common way the fed increases/ decreases the money supply?
%^M= %^P+ %^Q- %^V
Percentage change exchange equation
Stagflation
Occurrence of inflation and high unemployment at the same time
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