Fiscal Policy as an Economic Stabilization Measure Fiscal Policy refers to the various decisions undertaken by the government regarding public expenditures and revenue. Fiscal Policy is a direct government intervention in the economic processes of an economy. All the sub fiscal policies can be broadly categorized as being either ‘Public Expenditure’ or ‘Public Revenue’. The fiscal policy’s sub-policies are: The Taxation structure – through this fiscal tool the government is able to
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is caused when the aggregate demand exceeds the aggregate supply of goods and services. We analyze the factors which lead to increase in demand and the shortage of supply. Factors Affecting Demand Both Keynesians and monetarists believe that inflation is caused by increase in the aggregate demand. They point towards the following factors which raise it. 1. Increase in Money Supply. Inflation is caused by an increase in the supply of money which leads to increase in aggregate demand. The higher
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Quiz 2 Econ 201 1.The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run‚ assuming ________ is constant. A) total income; real GDP; the price level B) total production; total income; real GDP C) total spending; real GDP; the price level D) total spending; real GDP; total income 2.In 2001‚ Cisco Systems was surprised by a decline in demand for their equipment‚ resulting in an unexpected increase in
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Discuss the various roles that fiscal policy might play in the Australian economy. Possible roles for Fiscal Policy: (i) Aggregate Demand Management for Full Employment Increase G or cut T‚ to increase AD and reduce Unemployment But time lags in recognition‚ implementation‚ and effects for inflexible Fiscal Policy‚ and “crowding out” of private investment expenditure are problems. (ii) Fiscal Policy to Reduce Inflation Cut taxes to reduce costs‚ increase productivity (iii) Fiscal Policy
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ECON 248 Assignment 2 1. The bank rate is the interest rate at which the Bank of Canada stands ready to lend reserves to chartered banks. The banker ’s deposit rate is the interest rate that the Bank of Canada pays banks on their deposits at the Bank of Canada. Changes to these rates by the Bank of Canada typically spread to other interest rates and therefore will influence the amount of lending done by the banks. An open market operation is the purchase or sale of government securities‚ which
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that went into the bread as well as the bread would double count the wheat—once as wheat and once as part of the bread. 2. Why does GDP equal aggregate income and also equal aggregate expenditure? GDP equals aggregate income because one way to value production is by the cost of the factors of production employed. GDP equals aggregate expenditure because another way to value production is by the price that buyers pay for it in the market. 3. What is the distinction between gross and net
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defined as a. changes in government expenditure to influence the economy. b. changes in tax rates to influence the economy. c. changes in the money supply to influence the economy. * d. both a and b but not c. 143. Expansionary fiscal policy financed by government borrowing can lead to a. higher interest rates and lower private investment under the crowding-out view. b. an increase in aggregate demand under the Keynesian view. c. no change in aggregate demand under the new classical view
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completes the statement or answers the question. 1) Equilibrium in the goods market occurs where A) aggregate expenditure equals autonomous consumption. B) real GDP equals nominal GDP. C) aggregate expenditure equals real GDP. D) autonomous consumption equals induced consumption. 2) Other things equal‚ if planned investment spending is greater than actual investment spending‚ then aggregate expenditure will be ________ real GDP and inventories will ________. A) greater than; fall B) greater than; rise
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supply‚ which in turn will create growth‚ capital accumation and technological advancement. The second is the Short Run framework‚ which emphasizes business cycles as a way to best study economics. Also known as demand economics‚ the key is aggregate expenditures. Meaning‚ in order to support economic growth‚ government and businesses must focus in consumer spending. Economist use real GDP (Real Gross Domestic Production) to measure the health of an economy and determine at what stage of a business
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interest rates and government spending‚ in an effort to control the economy. Fiscal Policy is generally controlled by the Legislative and Executive branches of government. There are two primary components of Fiscal Policy‚ government expenditures and taxes. Government expenditures are anything the government spends money on this includes all government consumption and investment but excludes transfer payments made by a state. By imposing taxes the government receives revenue from the population. Taxes come
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