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UF / Economics / ECO 2013 / What is the difference between fiscal expansion policy and contraction

What is the difference between fiscal expansion policy and contraction

What is the difference between fiscal expansion policy and contraction

Description

School: University of Florida
Department: Economics
Course: Principles of Macroeconomics
Professor: David knight
Term: Fall 2016
Tags:
Cost: 50
Name: Exam 3 Study Guide
Description: This is a study guide for our final exam next Tuesday.
Uploaded: 12/08/2017
6 Pages 189 Views 2 Unlocks
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ECO2013


What is the difference between expansion fiscal policy and contractionary fiscal policy?



Exam 3 Study Guide

FISCAL POLICY

- Use of federal budget to influence the macroeconomy or to promote a macroeconomic  objective (such as maintaining a low unemployment, steady economic growth, and low  inflation)

- Involves changing gov spending and taxes to achieve a macroeconomic objective - Decided on and carried out by Congress and the President 

- Employment Act of 1946:

o 3 policy goals of federal government:

1. Promoting GDP growth

2. Keeping unemployment low

3. Keeping inflation low  

BUDGET

- Federal gov’s budget is used for:

o Financing federal gov programs


What are the two categories of the monetary base?



o Achieving macroeconomic stability (through fiscal policy actions)

FEDERAL RECEIPTS  

- Fed gov receives funds from: We also discuss several other topics like What is fecundity?

o Personal income tax

o Payroll taxes, including social security tax

o Corporate income tax

o Indirect taxes and other receipts

FEDERAL OUTLAYS

- Categories of gov spending:

o Transfer payments

o Spending on goods and services

o Interest on the federal debt

BUDGET BALANCE = federal receipts – federal outlays

EXPANSIONARY FISCAL POLICY

- Intended to boost aggregate demand by reducing taxes, increasing gov spending, or  both


What is fiscal policy?



If you want to learn more check out What is the difference between retaliatory and offensive aggression?

CONTRACTIONARY FISCAL POLICY

- Intended to reduce aggregate demand by increasing taxes, decreasing gov spending, or  both  

GOV SPENDING MULTIPLIER = change in real GDP / change in gov spending

TAX MULTIPLIER = change in real GDP / change in taxes

- Always negative

FUNCTIONS OF MONEY:

- Medium of exchange

- Unit of account

- Store of value

M1 AND M2 MEASURES OF MONEY:

- M1 = currency, checking account balances, traveler’s checks

o Most easily spendable forms of money

- M2 = everything in M1 + plus various other assets that are considered “near money”;  including deposits in savings accounts, time deposits, and money market mutual fund  balances  

MONETARY BASE

- 2 categories:

o currency available to or held by the public

o reserves of depository institutions held by the central bank

DEPOSITORY INSTITUTIONS

- 3 categories:

o commercial banks

o thrift institutions

o money market mutual funds

- roles: creating liquidity, pooling risk, reducing the cost of monitoring borrowers,  reducing the cost of borrowing  

REQUIRED RESERVE RATIO (RR) = required reserves / deposits We also discuss several other topics like In what year did the first president-elect without his party leading in either house of congress labor?
Don't forget about the age old question of In what year did penicillin become the soc for treating syphilis, but the men still were not given treatment because another goal of the experiment was to see the long-term effects of the disease in post-mortem patients?
Don't forget about the age old question of What is the difference between thinking and feeling?

MONEY MULTIPLIER (MM)  

= 1 / fraction of deposits held as reserves

= 1 / RR (assuming no excess reserves)

MONETARY POLICY

- tools:

o open market operations

o changing the required reserve ratio

o changing the discount rate

CHANGE IN MONEY SUPPLY = money multiplier x change in monetary base

EXCHANGE RATES

- nominal exchange rate = price of one currency in terms of another currency

- appreciation = increase in the exchange rate of the dollar - depreciation = decrease in the exchange rate of the dollar

DEMAND FOR A CURRENCY

- downward sloping for 2 reasons:

o the export effect

o expected profit effect

SUPPLY OF CURRENCY

- upward sloping for 2 reasons:

o the import effect

o the expected profit effect

EXCHANGE RATE POLICY

- floating exchange rate  

- fixed exchange rate

- managed float

- crawling peg

ECO2013

Exam 3 Study Guide

FISCAL POLICY

- Use of federal budget to influence the macroeconomy or to promote a macroeconomic  objective (such as maintaining a low unemployment, steady economic growth, and low  inflation) If you want to learn more check out Where are the measures of learning based on?

- Involves changing gov spending and taxes to achieve a macroeconomic objective - Decided on and carried out by Congress and the President 

- Employment Act of 1946:

o 3 policy goals of federal government:

1. Promoting GDP growth

2. Keeping unemployment low

3. Keeping inflation low  

BUDGET

- Federal gov’s budget is used for:

o Financing federal gov programs

o Achieving macroeconomic stability (through fiscal policy actions)

FEDERAL RECEIPTS  

- Fed gov receives funds from:

o Personal income tax

o Payroll taxes, including social security tax

o Corporate income tax

o Indirect taxes and other receipts

FEDERAL OUTLAYS

- Categories of gov spending:

o Transfer payments

o Spending on goods and services

o Interest on the federal debt

BUDGET BALANCE = federal receipts – federal outlays

EXPANSIONARY FISCAL POLICY

- Intended to boost aggregate demand by reducing taxes, increasing gov spending, or  both

CONTRACTIONARY FISCAL POLICY

- Intended to reduce aggregate demand by increasing taxes, decreasing gov spending, or  both  

GOV SPENDING MULTIPLIER = change in real GDP / change in gov spending

TAX MULTIPLIER = change in real GDP / change in taxes

- Always negative

FUNCTIONS OF MONEY:

- Medium of exchange

- Unit of account

- Store of value

M1 AND M2 MEASURES OF MONEY:

- M1 = currency, checking account balances, traveler’s checks

o Most easily spendable forms of money

- M2 = everything in M1 + plus various other assets that are considered “near money”;  including deposits in savings accounts, time deposits, and money market mutual fund  balances  

MONETARY BASE

- 2 categories:

o currency available to or held by the public

o reserves of depository institutions held by the central bank

DEPOSITORY INSTITUTIONS

- 3 categories:

o commercial banks

o thrift institutions

o money market mutual funds

- roles: creating liquidity, pooling risk, reducing the cost of monitoring borrowers,  reducing the cost of borrowing  

REQUIRED RESERVE RATIO (RR) = required reserves / deposits

MONEY MULTIPLIER (MM)  

= 1 / fraction of deposits held as reserves

= 1 / RR (assuming no excess reserves)

MONETARY POLICY

- tools:

o open market operations

o changing the required reserve ratio

o changing the discount rate

CHANGE IN MONEY SUPPLY = money multiplier x change in monetary base

EXCHANGE RATES

- nominal exchange rate = price of one currency in terms of another currency

- appreciation = increase in the exchange rate of the dollar - depreciation = decrease in the exchange rate of the dollar

DEMAND FOR A CURRENCY

- downward sloping for 2 reasons:

o the export effect

o expected profit effect

SUPPLY OF CURRENCY

- upward sloping for 2 reasons:

o the import effect

o the expected profit effect

EXCHANGE RATE POLICY

- floating exchange rate  

- fixed exchange rate

- managed float

- crawling peg

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