What does expansionary fiscal policy mean?
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Expansionary fiscal policy is the fiscal policy that aims to raise aggregate expenditures by increasing government spending and/or reducing taxes.
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Expansionary fiscal policy is the fiscal policy that aims to raise aggregate expenditures by increasing government spending and/or reducing taxes.
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According to the Keynesian model, the reason of inflation is the excess of aggregate spending. So, trying to buy more goods and services than the economy can produce causes inflation.
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After the Great Depression started in 1929, significant increases in public expenditures were observed worldwide. And, these increases have come until today.
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1. Economic Transfers 2. Financial Transfers 3. Social Transfers 4. Debt Payments
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The state’s use of public expenditures and taxes in order to affect the macroeconomic variables such as employment, income and prices is called as fiscal policy.
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The multiplier effect created by any change in taxes can be named as tax multiplier. It is the coefficient that determines the effect of a change in taxes on the level of income.
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Mercantilism is the economic theory that relates the wealth of a society and a government to precious metal stock of the country. Since getting strong and gaining reputation for a government depend on the surplus of precious metals, economic development is only possible by having low level of import and high level of export. This is the only way to increase precious metal stock that a country has.
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The most important revenue item of government is income tax and it solely depends on the level of income.
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Public expenditure, includes all expenditures of public institutions and organizations out of budget system, as well as the expenditures within the government budget. Public expenditures in broad sense are also called as economic public expenditures.
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Yd = C + S + IM Disposable income = Consumption + Saving + Import Disposable income is used in three different ways with the assumption that the taxes are autonomous, in other words, they are determined independently from income: Consumption (C), saving (S) and import (IM).
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Automatic stabilizers are the revenue and expenditure items in the government budget that automatically change to provide stability in the economy.
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Taxes are monetary amounts which the government and public institutions having taxation authority take outrightly from natural and legal persons in order to cover the public expenses based on sovereign rights and laws.
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Balanced budget multiplier is the net multiplier with a value of 1 when government expenditures and taxes change in the same amount and direction.
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Sometimes, an economy may experience instabilities because of excess aggregate spending, as well. Just as when the demand of a good is more than its supply, the price of that good increases; in case of aggregate spending overcomes the value of realized production, general price level also starts to rise from macroeconomic point of view. We name this kind of economic environment as inflationary gap.
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We cannot define the money within certain limits it is a dynamic concept. It demonstrates a changing structure from community to community and even in the same community from time to time. Part of the objects we accept or use as money today will possibly be out of money definition in future due to the developments in e-trade via computer technology and internet.
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It serves as a medium of exchange, a unit of account and a store of value.
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Economic units exchange goods and services on hand with money, and use this money to buy goods and services they want. Money, as a medium of exchange, is a kind of tool simplifying and accelerating exchange process of goods and services.
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In a barter economy, people exchange the goods they produce with the goods they want to consume. If you produce bread and need cloth, meat and other goods, you had to contact with people who produce these goods and are willing to exchange bread with goods you desire.
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You will experience two important problems during this barter process: First, the person having clothes on hand should need bread to make an exchange with you. In other words, barter is linked to a double coincidence of wants, which occurs only when a trader is willing to exchange his/her product for what another offers. Second, you have to agree with each other on the rate of exchange – that is, how many breads should be exchanged for a t-shirt.
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It refers to the common measurement unit in quantifying the value of goods and services.
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Store of value function of money means that it ensures to keep purchasing power on hand.
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Commodity money is the object which has a value when used as goods and which can also be used as medium of exchange. The best example of commodity money is gold.
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The objects having no value as goods but referring to a value in purchasing goods and services are called as fiat money. The paper pieces we use as medium of exchange today has no value as goods. But these papers in your pocket refer to an amount of value equal to the numbers printed on it in purchasing goods and services.
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Gresham’s Law states that the bad money drives out the good money in the market. For instance, if both gold and silver coins are in use (in circulation) at the same time, an interesting situation emerges. Since gold as a commodity has a greater value than silver, nobody wants to spend coins in his/her pouch and everyone tries to spend silver coins first. If everybody behaves like that, the money passing from hand to hand will be silver coins and gold coins will stay in people’s pouch. If we call silver coins as bad money and gold coins as good money, we can easily say that bad money drives out good money in the market.
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• Coins • Banknotes • Demand deposits
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