test 2-study guide2

test 2-study guide2 - Fiscal Policy gov’t spending and...

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Unformatted text preview: Fiscal Policy- gov’t spending and taxes; primary tool for the fed budget; regulates GDP Automatic stabilizers- promote a budget deficit during a recession and a budget surplus during an inflationary boom, even without a change in policy; employment level, interest rates, and supply Countercyclical policy- stimulates demand during the contraction phase of the business cycle and restrain demand during the expansion phase. Crowding-out effect- A reduction in private spending as a result of higher interest rates generated by budget deficits that are financed by borrowing in the private loanable funds market. Discretionary fiscal policy- A change in laws or appropriation levels that alters government revenues and/or expenditures; deliberate changes in spending/taxes; affects size of deficit/surplus Expansionary fiscal policy- An increase in government expenditures and/or a reduction in tax rates such that the expected size of the budget deficit expands. Expansionary monetary policy- A shift in monetary policy designed to stimulate aggregate demand. Bond purchases by the Fed, the creation of additional bank reserves, and an increase in the growth rate of the money supply generally indicate a shift to a more expansionary monetary policy. *operating below full employment Contractionary monetary policy- above full employment New classical economists-...
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