Fiscal Policy

What is Fiscal Policy?

• Use of gov't spending and tax policies to influence economic conditions

• A central bank influencing a nation's money supply

Who had a big influence on Fiscal Policy?

• John Maynard Keynes

• Thomas Malthus

• Adam Smith

Keynes argued that recessions are due to a deficiency in:

• Consumption

• Investment

• Government Spending

• Consumption AND Investment

Keynes believed that __________________ could stabilize the business cycle and regulate economic output.

According to Keynesian economists, the private sector components of aggregate demand are:

• Very emotional

• Not very emotional

What are the two major Fiscal Policies?

Expansionary Fiscal Policy is usually characterized by:

• A balanced budget

• Budget surplusses

• Deficit spending

What are some of the downsides of Expansionary Fiscal Policy? (select all that apply)

• Mounting deficits

• Fiscal stimulus is easy to reverse

• Gov't spending crowds out private sector investment

• Economic expansion can get out of hand

What is NOT one of the things a gov't might do as part of an Expansionary Fiscal Policy?

• Lower taxes

• Issue rebates

• Increase spending

• Cut spending

TRUE/FALSE: Contractionary Fiscal Policy is rarely used.

• True

• False