Fiscal Policy Basics
The use of government spending and taxation to influence the economy.
Fiscal Policy
What is expansionary fiscal policy aimed at?
Boosting aggregate demand and stimulating economic growth.
What is contractionary fiscal policy aimed at?
Reducing aggergate demand and controlling inflation.
The type of tax directly imposed on individuals or businesses.
Direct Tax
What are tools used by governments to implement fiscal policy?
Government spending and taxation
What are the goals of expansionary fiscal policy?
Increasing employment, output, and investment.
What are the goals of contractionary fiscal policy?
Decreasing inflationary pressures, stabilizing prices, and reducing budget deficits.
What type of tax is imposed on goods and services?
Indirect Tax
A situation where government spending exceeds revenue.
Budget deficit
How does a budget deficit impact aggregate demand?
It increases aggregate demand by injecting more money into the economy.
How does a budget deficit impact aggregate demand?
What type of tax takes a higher proportion of income from higher-income individuals?
Progressive Tax
What is a situation where government revenue exceeds spending?
Budget surplus
How does a budget surplus impact aggregate demand?
It reduces aggregate demand by withdrawing money from the economy.
How does a budget surplus impact aggregate demand?
It reduces aggregate demand by withdrawing money from the economy.
What type of tax takes the same proportion of income from all individuals?
Proportional Tax
the total amount of money owed by the government.
Public/National debt
What are examples of expansionary fiscal policy measures?
Increased government spending or tax cuts.
What are the examples of contractionary fiscal policy measures?
Decreased government spending or tax increases.
What type of tax takes a higher proportion of income from lower-income individuals?
Regressive Tax