FINAL REVIEW - Fiscal PolicyConsists of...

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Fiscal Policy —Consists of deliberate changes in government spending and tax collections designed to achieve full employment. (fiscal= financial) Council of Economic Advisors (CEA)— A group of three economists appointed by the president to provide expertise and assistance on economic matters. Discretionary Changes -- Do not happen automatically, are at the option of the federal government. ( ELIMINATE RECESSIONARY GAP, ELIMINATE INFLATION GAP, NON- DISCRETIONARY FISCAL POLICY (COUNTER CYCLICAL) Expansionary Fiscal Policy —When recession occurs—uses increases in government spending or tax cuts to push the economy out of recession. ( INCREASE SPENDING, LOWER TAX, COMBO OF BOTH)608 Increased Government Spending —Will shift the economy’s aggregate demand curve to the right. Tax Reductions —Will also shift the aggregate demand curve to the right. Combined Government Spending Increases and Tax Reductions —Produce the desired initial increase in spending and the eventual increase in aggregate demand and real GDP. Contractionary Fiscal Policy —Uses decreases in government spending or increases in taxes to reduce demand-pull inflation. Budget Surplus —Tax revenues are in excess of government spending. Decrease Government Spending —Shifts the aggregate demand curve leftward to control demand-pull inflation. Increased Taxes —Government increases taxes to reduce consumption spending. Built-in Stabilizer —A mechanism that increases government’s budget deficit( or reduces its surplus) during a recession and increases government’s budget surplus (or reduces the deficit) during an expansion
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This note was uploaded on 10/01/2010 for the course ECO 2013 taught by Professor Haroldj.vanboven during the Fall '09 term at Edison State College.

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FINAL REVIEW - Fiscal PolicyConsists of...

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