Chapter 13...

Question 1

How government influences each sector using fiscal policy

Answer 1

G:
- Government purchasing g & s
- Transfer (but this counts as C when we add GDP)

C:
- Tax (more tax = less disposable income = less spedning)
- Transfer (more transfer = more income = more spendign)
social insurance

I:
- Tax (ex) higher tax on greenhousegas emission on businesses)
- Transfer (ex) higher transfer for electric car production)

Question 2

Define

Fiscal Policy

Answer 2

The government directly influencing GDP(output) by tax & G(government spending)

Question 3

Expansionary fiscal policy

Also when does government use it?

Answer 3

• Gov spending UP
• Tax Down
• Transfer UP
  –> Output UP
• Government use it when the economy is in recessionary gap

Question 4

Contractionary fiscal policy

Also when does government use it?

Answer 4

• Gov spending DOWN
• Tax UP
• Transfer DOWN
  –> Output DOWN
• Government use it when the economy is in expansionary gap

Question 5

Demand / supply graph

How does fiscal policy impact the graph

Answer 5

Fiscal policy can shift the demand line
- Expansionary - to the right
demand 올라가면 output & price level 올라감
- Contractionary - to the left
demand 내려가면 output & price level 내려감

Question 6

3 Problems? Criticism of Fiscal Policy

Answer 6

1. Government spedning means crowding out private savings
2. Government borrowing means crowding out investment spending
3. Government budget deficits (TR >T) reduce private spending
   (But in this case, it could work temporarily)