12.8 Key Terms
Key Terms
Tax and spending rules that have the effect of slowing down the rate of decrease in aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation.
When total expenditure and revenues match (G+TR=T)
Total expenses exceed total revenue (G+TR>T). Increases government debt.
Total revenues exceed total expenditures (G+TR<T). Reduces public debt.
Fiscal policy that decreases the level of aggregate demand, either through cuts in government spending or increases in taxes.
A reduction in investment due to higher interest rate.
When the government decides to change taxes or spending in order to address public policy goals.
Fiscal policy that increases the level of aggregate demand, either through increases in government spending or cuts in taxes.
The time it takes to assess the impact on the economy.
Results from the process of discussions and arguments by Members of Parliament to decide on appropriate course of action and the political consequences of policy changes.
A series of increases in induced consumption expenditure from an initial increase in autonomous spending.
Identifying the correct economic circumstance to identify the appropriate policy tool to be used, through data collection which might take anywhere between three and six months.
Tax cuts also generate a multiplier effect as the government expects that people will have more disposable income to spend and this could increase consumption spending.
