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What are automatic stabilizers?
Fiscal policies already in place to counteract economic fluctuations without new government action.
Define progressive income taxes.
A tax system where higher earners pay a larger percentage of their income in taxes.
What are unemployment benefits?
Government payments to individuals who have lost their jobs and are actively seeking employment.
Define welfare programs.
Government programs that provide assistance to individuals and families in need, such as TANF.
What is discretionary fiscal policy?
Government actions to influence the economy through deliberate changes in spending or taxation.
Define budget deficit.
When government spending exceeds tax revenues in a given period.
Define budget surplus.
When tax revenues exceed government spending in a given period.
What is aggregate demand?
The total demand for goods and services in an economy at a given price level and time.
Define GDP.
The total value of goods and services produced within a country's borders in a specific time period.
What is the business cycle?
The periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables.
How do unemployment benefits work during a recession?
They increase disposable income for the unemployed, boosting aggregate demand.
How do progressive income taxes work during an expansion?
They take a larger percentage of income from higher earners, reducing disposable income and slowing down spending.
What is the effect of welfare programs during economic downturns?
They provide a safety net for families in need, helping to maintain some level of spending.
How do automatic stabilizers affect budget deficits during recessions?
They lead to increased government spending and reduced tax revenues, increasing budget deficits.
How do automatic stabilizers affect budget surpluses during expansions?
They lead to decreased government spending and increased tax revenues, increasing budget surpluses.
How do automatic stabilizers affect aggregate demand during a recession?
They increase aggregate demand by boosting disposable income and government spending.
How do automatic stabilizers affect aggregate demand during an expansion?
They decrease aggregate demand by reducing disposable income and government spending.
How do automatic stabilizers affect GDP during a recession?
They help to prevent a deeper recession by supporting aggregate demand and maintaining economic activity.
How do automatic stabilizers affect GDP during an expansion?
They help to cool down the economy and reduce the risk of inflation by slowing down spending.
How do automatic stabilizers impact the severity of the business cycle?
They reduce the severity of economic fluctuations but do not eliminate the business cycle entirely.
What is the impact of increased unemployment benefits on disposable income during a recession?
It increases disposable income for the unemployed.
What is the impact of progressive income taxes on disposable income during an expansion?
It reduces disposable income for higher earners.
What is a potential drawback of using automatic stabilizers?
They can lead to budget deficits during recessions.
How do automatic stabilizers affect the price level during a recession?
They can help to stabilize the price level by supporting aggregate demand.
How do automatic stabilizers affect the price level during an expansion?
They can help to prevent inflation by slowing down spending.
What is the effect of increased welfare spending on poverty rates during an economic downturn?
It can help to reduce poverty rates by providing a safety net for families in need.
How do automatic stabilizers affect government debt levels over the long term?
They can contribute to increased government debt during recessions, but also help to reduce debt during expansions.
What is the impact of automatic stabilizers on the effectiveness of monetary policy?
They can complement monetary policy by providing additional support during economic fluctuations.
How do automatic stabilizers affect consumer confidence during a recession?
They can help to maintain consumer confidence by providing a safety net and supporting disposable income.
What is the impact of automatic stabilizers on business investment during an expansion?
They can help to moderate business investment by slowing down spending and reducing the risk of inflation.