Chapter 20: Fiscal Policy
Terms in this set (13)
the part of the budget that works its way through the appropriations committee in Congress and includes national defense, transportation, science, environment, and income security
spending authorized by permanent laws that does not go through the same appropriations process and includes Social Security, Medicare (also called entitlement programs), and interest on the national debt
discretionary fiscal policy
involves adjusting government spending and tax policies with the express short-run goal of moving the economy toward full employment, expanding economic growth, or controlling inflation
expansionary fiscal policy
involves increasing gov't spending, increasing transfer payments, or decreasing taxes to increase AD to expand output and the economy
contractionary fiscal policy
involves increasing withdrawals from the economy by reducing gov't spending, transfer payments, or raising taxes to decrease AD to contract output and the economy
supply-side fiscal policies
policies that focus on shifting the LRAS curve to the right, expanding the economy with increasing inflationary pressures. Unlike policies to increase AD, supply-side policies take longer to have an impact on the economy
plots hypothetical tax revenues at various income tax rates. As tax rates rise from 0, revenues rise, reach a max, and then decline.
tax revenues and transfer payments automatically expand or contract in ways that reduce the intensity of business fluctuations without any overt action by Congress or other policymakers
the time policymakers must wait for economic data to be collected, processed, and reported.
the time it takes for policymakers to confirm that the economy is trending in or out of a recession. Short-term variations in key economic indicators are typical and sometimes represent nothing more than randomness in the data
the time it takes Congress and the administration to decide on a policy once a problem is recognized
the time required to turn fiscal policy into law and eventually have an impact on the economy
arises from deficit spending requiring gov't to borrow, which drives up interest rates, which in turn reduces consumer spending and business investment
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