Shared Flashcard Set

Details

Econ flashcards
Fiscal Policy
18
Economics
12th Grade
03/31/2008

Additional Economics Flashcards

 


 

Cards

Term
Fiscal Policy
Definition
The federal government's use of taxes, government spending, and transfer payments to promote economic growth and stability
Term
demand-side economics
Definition
The use of fiscal policy to regulate aggregate demand in the economy
Term
aggregate demand
Definition
the total demand for final goods and services in the economy at a given time and price level; kind of the same thing as GNP

D= C + I + G +F
with d=aggregate demand,
c= consumer goods
g= government goods
f= net exports
Term
discretionary fiscal policy
Definition
Congressional actions that change taxes and government spending in response to economic instability in the economy
Term
tax incentive
Definition
Special tax breaks that the government extends to businesses to encourage investment in new capital
Term
investment tax credit
Definition
A major tax incentive
Permits firms to deduct from their corporate income taxes a percentage of the money they spend on new capital
-To reduce unemployment, govt raises investment tax credit to encourage businesses to spend more money on expansion and increase aggregate demand
- To reduce inflation govt decreases the investment tax credit to restrict business activity and lower aggregate demand
Term
Non-discretionary fiscal policy
Definition
Automatically activated by certain built-in features of the federal tax and spending programs. AKA automatic stabilizers
Term
Automatic stabilizer
Definition
Stabilizers considered automatic because they provide a constant injection of money into the economy.
Term
Public transfer payment
Definition
Method through which tax dollars are redistributed to nonproductive sectors of the economy (aka social programs)
- A type of automatic stabilizer
Term
Multiplier effect
Definition
-Explains how small changes in income ripple through the economy and eventually cause a much larger change in spending
-Takes spending habits into account
-Activated as soon as people receive new income

MPC: marginal propensity to consume
MPS: " " " save
Term
Supply-side economics
Definition
Government actions that provide incentives for producers to increase aggregate supply
Term
Say's Law
Definition
An economic law that declared that supply creates its own demand
-Economic growth rests on producers' willingness and ability to increase total production (aka aggregate supply)
Term
Reaganomics
Definition
1. Tax cuts on personal and corporate incomes
2. Spending cuts on social programs
3. Regulatory reform

AKA SSE
Term
Progressive income tax
Definition
higher individual incomes taxed at higher rates
Term
Limitations of fiscal policy
Definition
Timing problems (forecasting/identification/inflexibility)
Political constraints (dem vs rep, prez vs cong)
Unpredictable economic behaviors (MPC vs MPS predictions)
Lack of coordination (Fed vs Cong, Local vs fed govt)
Term
Stagflation
Definition
UN and IN rising at the same time
Term
Laffer's theory
Definition
Tax cuts can actually increase govt revenues b/c you create an incentive to I/W/P
Term
Limitations of SSE
Definition
Difficult to determine where we should be on Laffer curve
Can't predict eco behavior
New revenues insufficient to balance budget
Deregulation/spending cuts may bring more costs than benefits
Supporting users have an ad free experience!