Fiscal Policy

Why does the government use fiscal policy?

Federal Budget

Revenues consist of

outlays consist of

Budget Balance

Budget Surplus

Budget Deficit

Balanced Budget

Government Debt

Supply-Side Effects

Tax Wedge

When the quantity of labour employed decreases, potential GDP ______ and the supply-side effect of a rise in the income tax _____ potential GDP and _______ aggregate supply

Tax Wedge Rate Equation

Real Interest Rate Equation

Real After-Tax Rate Equation

Laffer Curve

A tax ______ the supply of loanable funds

At the tax rate T* on the Laffer curve, tax revenue is ________

Below T* on the Laffer curve, a rise in the tax rate _______ revenue

For a tax rate above T* on the Laffer curve, a rise in the tax rate _______ tax revenue

Discretionary Fiscal Policy

Automatic Fiscal Policy

Structural Surplus or Deficit

Cyclical Surplus or Deficit

Government Expenditure Multiplier

Tax Multiplier

if the government finances spending by borrowing, there is _________

An increase in government expenditure or a tax cut _______ aggregate demand

A decrease in government expenditure or a tax increase _______ aggregate demand

Removal of stimulus can act like a fiscal restraint and shift aggregate demand to the _______

Recognition Lag

Law-Making Lag

Impact Lag