[MACRO] 05 - The Government and Fiscal Policy

Question 1

Definition: Fiscal Policy

Answer 1

The governments spending and taxing policies. They always case a direct effect in the goods and services market.

Question 2

Definition: Monetary Policy

Answer 2

The behaviour of the Federal Reserve concerning the nation’s money supply.

Question 3

Definition: Net Taxes (T)

Answer 3

Sum of taxes paid by firms and households to the gov. minus transfer payments made to households by the gov.

Question 4

Definition: Disposable Income

Answer 4

Income - Taxes

Question 5

Nature of Government Budget

Answer 5

The gov. should always be at a budget deficit, as politicians want to be re-elected, which requires spending more money in order to improve living conditions in the country.

Question 6

Definition: Budget Deficit

Answer 6

The difference between what a government spends and what it collects in taxes in a given period.

G - T

Question 7

Definition: Crowding out Effect

Answer 7

As a result of an increase in income and interest rates, firm investment will decrease (will be crowded out).

Question 8

Definition: Expansionary Fiscal Policy

Answer 8

A policy that increases Government spending or reduces tax rates.

Question 9

Definition: Contractionary Fiscal Policy

Answer 9

A policy that reduces Government spending ro increases tax rates.