Fiscal Policy - AP Macroeconomics

A budget deficit that persists even at full employment. Reflects underlying fiscal imbalance independent of economic cycle.

Increase in taxes or decrease in government spending. Reduces aggregate demand to cool economic activity.

Decreases in government spending or increases in taxes to reduce inflation. Used during periods of high inflation or economic overheating.

Through expansionary measures to boost demand and job creation. Stimulus spending creates jobs and increases labor demand.

Increased government spending leads to reduced private sector investment. Occurs when government borrowing raises interest rates.

Expansionary fiscal policy. Stimulus spending boosts aggregate demand during downturns.

Shifts the aggregate demand curve. Changes aggregate demand through spending and tax adjustments.

Government spending. Direct injection of money into the economy.

When government spending exceeds government revenue. Requires government borrowing to finance the shortfall.

When it aims to decrease aggregate demand. Cools economic activity through reduced spending or higher taxes.

Reduction in aggregate demand due to progressive taxation. Higher incomes push taxpayers into higher tax brackets.

May increase interest rates due to higher demand for loanable funds. Increased borrowing raises demand for loanable funds.

The change in output when government spending and taxes are equal. Equal increases in spending and taxes have net positive effect.

Taxation. Affects disposable income and consumption patterns.

Increases in government spending or decreases in taxes to stimulate the economy. Used during recessions to boost aggregate demand.

To stimulate economic growth and reduce unemployment. Counter-cyclical policy to restore full employment.

When it aims to increase aggregate demand. Stimulates economic activity through higher spending or lower taxes.

Delay between policy implementation and its effects on the economy. Recognition, implementation, and impact lags reduce effectiveness.

Government use of spending and taxation to influence the economy. Key macroeconomic tool used to manage economic cycles.

Decrease in taxes or increase in government spending. Increases aggregate demand to stimulate economic activity.

$\text{Multiplier} = \frac{1}{1 - MPC(1 - t)}$. Accounts for tax rate effects on spending multiplier.

A budget deficit that occurs due to economic downturns. Temporary deficit caused by reduced economic activity.

Deliberate changes in government spending and taxes by policymakers. Requires legislative action to implement changes.

Impact on productivity and potential output. Infrastructure spending can enhance long-term productivity.

Marginal Propensity to Consume. Key component in calculating fiscal multiplier effects.

Government borrowing to cover a budget deficit. Government issues bonds to fund spending above revenue.

To manage economic activity and achieve macroeconomic objectives. Includes goals like stable growth, low unemployment, and price stability.

Ability to maintain current fiscal policy without future fiscal crisis. Ensures long-term fiscal health without unsustainable debt growth.

The size of the fiscal multiplier. Larger multipliers increase policy impact on GDP.