Krueger, Explorations in Economics 1e, Module 46

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Expansionary fiscal policy

Any combination of government spending and tax cuts meant to spur the economy.

Automatic stabilizers

Changes in taxation and transfer payments that moderate changes in GDP and do not require authorization from the government.

Contractionary fiscal policy

Contractionary fiscal policy is any combination of government spending cuts and tax increases meant to slow the economy down.

Disposable income

Income after taxes have been removed.

Supply-side policy

Supply-side policy is policy meant to stimulate the economy by increasing aggregate supply.

Fiscal policy

The use of government spending and taxation to pursue economic growth, full employment, and price stability.

inside lag

A delay between the onset of a problem and the implementation of a solution.

Demand-side policy

A policy meant to stimulate the economy by changing aggregate demand.

Classical economics

The school of economic thought, dominant from the 1700s to the 1930s, that favors laissez-faire policies with minimal government intervention.

Keynesian economics

The school of economic thought, named after British economist John Maynard Keynes, that advocates fiscal policy to mend problems with the economy.

outside lag

The time between a policy action and the resulting effect on the economy.

implementation lag

The time between the recognition of a problem and the decision about what to do about it.

recognition lag

The time it takes economists and government officials to realize that the economy is experiencing a problem.

Macroeconomic equilibrium

When aggregate supply equals aggregate demand.


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