Fiscal Economics – Flashcards
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idea that government can and should regulate the economy
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Keynesian Economics
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idea that taxation is a major aspect of the economy
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Supply-sided Economics
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idea that the markers regulate themselves
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Classical Economics
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idea that every dollar of change in government use of money is reflected in a greater change in the economy
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Multiplier Effect
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What problem did the Great Depression in the 1930s highlight that classical economics did not address?
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how long the market would take to return to equilibrium
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What is the maximum output that the economy can sustain over a period of time called?
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Productivity Capacity
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What are the two main economic problems that Keynesian economics seeks to address?
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periods of depression and inflation
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When the government collects taxes and pays out transfer payments as a way to balance the economy, what are these fiscal tools called?
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automatic stabilizers
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What does experience show about the relationship of taxation and work?
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a tax cut does not cause workers to work significantly more hours
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What is the current highest bracket for personal income taxes?
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about 40%
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two keys to fiscal policy
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taxes and transfer payments
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creator of Keynesian economics to help explain the Great Depression
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John Maynard Keynes
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economists who agreed with the idea that demand drives the economy
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demand-sided economics
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gov't spending so people would go back to work and spend their wages on goods and services
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answer to depression
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use tax cuts to stimulate the economy
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Republicans
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use expansive government programs to stimulate the economy
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Democrats
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how can government reduce inflation
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increase tax or reduce spending
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one of the most important things fiscal policy can achieve
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stable economy
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how much do consumers constitute
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70% of GDP
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how much does government constitute
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16% of GDP
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using the taxing and spending powers of government to regulate the economy
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fiscal policy
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speeds up the process of making it more difficult at every point to stop the drop
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accelerator
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safety net in keynesian economics (SS, welfare, etc.)
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entitlements
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Keynesian economics prevents this form happening at the same time
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recession and inflation
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any increase of decrease in investment spending has a multiplied affect in the economy
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Multiplier
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ideas of supply-sided economics based on this mans ideas
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JB Says
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what was Keynes concerned about?
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concerned about the economics of the country
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how did people feel about Keynes ideas?
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scared some and offended others
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who didn't want to use Keynes ideas and nerve liked them?
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Roosevelt
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What was the problem with the Great Depression
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fall of investment spending which led to the fall of consumer spending
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Who wasn't in favor of budget deficits?
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FDR
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what brought us out of the depression?
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World War II
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how did the war bring us out of the depression?
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increased demand
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situation in which budget revenues exceed expenditures
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budget surplus
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extremely rapid increase in price of goods and services; inflation growing at a very high rate in a very short time; some countries inflation is over 500%
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hyperinflation
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total amount of money the federal government owes to bondholders
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national debt
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short term bond
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treasury bill
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most of the U.S. debt is owed to whom?
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ourselves
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how foreign countries loan U.S. money
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U.S. treasury bonds
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reduces available credit for everyone and government takes it and makes credit more expensive
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crowding out effect
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two problems of national debt?
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crowding out and paying interest on debt
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today, many economist think the role of the federal government in the economy should be _____
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limited
