SMALL FINAL REVIEW - F iscal Policy Consists...

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Fiscal Policy —Consists deliberate changes government spending, tax collections designed achieve full employment. (fiscal= financial) Council of Economic Advisors (CEA)— group three economists appointed by president provide expertise and assistance on economic matters. Discretionary Changes -- Do not happen automatically, are option of federalgovernment. ( ELIM INATE RECESSIONARY GAP, ELIM INATE INFLATION GAP, NON- DISCRETIONARY FISCAL POLICY (COUNTER CYCLICAL) Expansionary Fiscal Policy —When recession occurs—uses increases government spending /tax cuts to push the economy out of recession. ( INCREASE SPENDING, LOWER TAX, COMBO OF BOTH)608 Increased Government Spending —Will shift economy’s aggregate demand curve right. Tax Reductions —Will also shift the aggregate demand curve to the right. Combined Government Spending Increases and Tax Reductions —Produce desired initial increase spending , eventual increase in aggregate demand and real GDP. Contractionary Fiscal Policy —Uses decreases government spending or increases taxes to reduce demand-pull inflation. Budget Surplus —Tax revenues are in excess of government spending. Decrease Government Spending —Shifts aggregate demand curve leftward to control demand-pull inflation. Increased Taxes —Government increases taxes to reduce consumption spending. Built-in Stabilizer —mechanism increases government’s budget deficit(reduces its surplus) during a recession & increases government’s budget surplus (or reduces deficit) during expansion without action by policymakers. tax system is one such mechanism.
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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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