1. Fiscal Policy
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2. What is fiscal policy?
changes in government
spending or taxes to alter
the economy
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3. What are examples of
expansionary fiscal policy?
• Increase government
spending
• Decrease taxes
• increase government
spending and taxes equally
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4. What are examples of
contractionary fiscal policy?
• Decrease government
spending
• Increase taxes
• Decrease government
spending and taxes equally
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5. budget surplus
government revenues
exceed government
expenditures in a
given time period
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6. budget deficit
government expenditures
exceed government
revenues in a given time
period
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7. What is the purpose
of fiscal policies?
To achieve long-run
growth in output, full
employment, and a
lower price level
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8. demand-side fiscal policy
A fiscal policy that
emphasizes government
policies that increase
demand
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9. supply-side fiscal policy
A fiscal policy that
emphasizes government
policies that increase
supply
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10. Will an increase in taxes
lead to higher
government revenues?
?????
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11. Laffer Curve
the idea that increasing
taxes from zero will
increase tax revenues up to
a certain point
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12. What happens beyond
a certain point?
Tax revenues begin to
decline
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13. Why does the shrink
happen?
Workers have less
incentive to work and
investors have less of an
incentive to invest
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14. The Laffer Curve
B
Federal Tax Revenue
Rmax
C
R
D
Federal Tax Rate
A
0 Tmax T 100% 14
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