16 flashcards · Shared on 19 August 2026 by AtomAI Library
Flip each card to check yourself.
What is fiscal policy?
Government use of spending and taxation to influence the economy
What is fiscal policy?
Government use of spending and taxation to influence the economy
Monetary policy primarily involves changes to which conditions?
Interest rates, money and credit conditions
Which action is an example of expansionary fiscal policy?
Increasing government spending during a recession
A central bank seeking to reduce excessive aggregate demand would most likely take which action?
Raise its policy interest rate
How can a reduction in policy interest rates increase aggregate demand?
It can encourage borrowing, consumption and investment
Why can an increase in government purchases have a direct effect on aggregate demand?
Government purchases are themselves a component of aggregate demand
Which feature best defines an automatic fiscal stabilizer?
It changes tax revenue or government payments as economic activity changes, without a new policy decision
Why may discretionary fiscal policy have a relatively long implementation lag?
Changes in taxes or spending may require political approval and administration
What does crowding out mean in the context of expansionary fiscal policy?
Government borrowing contributes to higher interest rates and reduces some private spending
What is the fiscal multiplier?
The total change in output resulting from an initial change in government spending or taxation
If government spending exceeds government revenue during a given period, what is recorded?
A budget deficit
Which institutional distinction commonly separates monetary policy from fiscal policy?
Monetary policy is often delegated to a central bank, while fiscal policy is set by government
Why may conventional expansionary monetary policy become less effective when interest rates are already near zero?
There is limited scope to reduce short-term policy rates further
Which combination represents contractionary fiscal policy?
Higher taxes or lower government spending
What is meant by an expansionary policy mix?
Expansionary fiscal policy combined with expansionary monetary policy
Why is a negative supply shock difficult to address using demand-management policy alone?
Supporting output may worsen inflation, while reducing inflation may further weaken output