Fiscal Policy

Front

What is Discretionary Fiscal Policy?

Back

The use of government purchases (G), taxes, and transfer payments to combat recession and inflation.

Front

What are the two approaches of Discretionary Fiscal Policy?

Back

Expansionary (for recession) and Contractionary (for inflation).

Front

What is the formula for GDP?

Back

GDP = C + I + G + X.

Front

What is the goal of Expansionary Fiscal Policy?

Back

To fight the pressures of recession by stimulating the economy, increasing GDP, and reducing unemployment.

Front

List the approaches of Expansionary Fiscal Policy.

Back

1. Increase government spending 2. Increase transfer payments 3. Lower taxes 4. Combination of the above.

Front

How does increasing government spending affect GDP?

Back

It increases the production of goods and services, leading to higher aggregate output and national income.

Front

What happens when the government makes transfer payments?

Back

People's disposable income increases, leading to higher consumption expenditure and increased GDP.

Front

What is the effect of lowering taxes on households?

Back

Households will have more disposable income to spend, increasing consumption expenditure and GDP.

Front

What is the impact of a combination of approaches in Expansionary Fiscal Policy?

Back

Greater government spending, greater transfer payments, and/or lower taxes will increase the budget deficit or reduce a budget surplus.

Front

What is Contractionary Fiscal Policy?

Back

It aims to fight the pressures of demand-pull inflation by slowing down economic growth and lowering economic boom.