Exploring Types of Fiscal Policy

Mr. Willis introduces the concept of the aggregate economy, explaining how GDP gaps can lead to recessionary or inflationary conditions. He discusses fiscal policy as a tool to stabilize the economy, detailing expansionary and contractionary policies. The video also covers discretionary and non-discretionary fiscal policies, emphasizing their roles in economic stabilization. The conclusion offers additional resources for further learning.

What is considered the natural unemployment rate?

• 2-3%

• 4-6%

• 7-9%

• 10-12%

What happens when aggregate demand is excessively high?

• Recessionary gap

• Equilibrium

• Deflation

• Inflationary gap

What is the primary goal of fiscal policy?

• To increase government debt

• To stabilize the stock market

• To influence aggregate demand

• To privatize public services

Which is a tool of expansionary fiscal policy?

• Increasing personal taxes

• Decreasing government spending

• Increasing government spending

• Reducing public services

What effect does decreasing personal taxes have?

• Increases government revenue

• Has no effect on the economy

• Increases consumer spending

• Reduces consumer spending

What triggers contractionary fiscal policy?

• Budget surplus

• High unemployment

• Inflationary gap

• Recessionary gap

How does decreasing government spending affect the economy?

• Has no effect on inflation

• Decreases aggregate demand

• Increases aggregate demand

• Increases consumer spending

What is the effect of increasing personal taxes?

• Boosts consumer spending

• Creates a recessionary gap

• Reduces consumer spending

• Decreases government revenue

What is a direct action of government in fiscal policy?

• Automatic stabilizers

• Discretionary fiscal policy

• Non-discretionary fiscal policy

• Market forces

What are automatic stabilizers?

• Market-driven economic policies

• Economic policies that activate without direct government action

• Policies that stabilize only the stock market

• Government spending and tax policies that need approval