Flashcards in 3.2.4 Macroeconomic policy Deck (4)
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1
Q
What does fiscal policy involve?
A
Government spending and taxation.
2
Q
What scenario is reflationary fiscal policy likely to be used and why?
A
During a recession or a negative output gap, using reflationary fiscal policy will increase economic growth and reduce unemployment but also increase inflation and worsen the balance of payments.
3
Q
What is reflationary fiscal policy?
A
Reflationary fiscal policy involves boosting aggregate demand by increasing government spending and/or reducing taxes.
4
Q
What is deflationary fiscal policy?
A
Deflationary fiscal policy involves reducing aggregate demand by reducing government spending and or increasing taxation.