AP®︎ Macroeconomics: Topic 3.8 Flashcards

Master key terms and definitions for Topic 3.8 of AP Macroeconomics – Fiscal Policy to help you prep for quizzes and the AP exam.

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Term

Fiscal Policy

Definition

Government use of spending, taxes, and transfers to influence aggregate demand and output.

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Fiscal Policy
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Government use of spending, taxes, and transfers to influence aggregate demand and output.

POL-1.APOL-1.A.2
Tools Of Fiscal Policy
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Government spending changes aggregate demand directly; taxes and transfers change it indirectly through disposable income.

POL-1.APOL-1.A.3
Expansionary And Contractionary Fiscal Policy
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Expansionary raises aggregate demand with higher spending or lower taxes; contractionary lowers it with lower spending or higher taxes.

POL-1.APOL-1.A.5
Discretionary And Nondiscretionary Fiscal Policy
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Discretionary requires new government action; nondiscretionary works automatically through existing tax and spending laws.

POL-1.A
Automatic Stabilizers
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Existing taxes and transfer programs that automatically reduce swings in real GDP without new legislation.

POL-1.A
Recessionary Gap And Inflationary Gap
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A recessionary gap is output below full employment; an inflationary gap is output above full employment.

POL-1.APOL-1.A.5
AD-AS Model And Fiscal Policy
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Shows fiscal policy as shifts in aggregate demand while short-run aggregate supply and long-run aggregate supply stay unchanged.

POL-1.APOL-1.A.7
Government Spending Multiplier
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1 divided by MPS; measures the total change in real GDP from a change in government spending.

POL-1.A
Tax Multiplier
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Negative MPC divided by MPS; measures the total change in real GDP from a tax change.

POL-1.A
Government Spending Multiplier Vs. Tax Multiplier
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The spending multiplier is larger because all government spending enters demand, but part of a tax change is saved.

POL-1.APOL-1.A.4
Calculating Fiscal Policy To Close An Output Gap
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Divide the output gap by the spending multiplier or tax multiplier to find the needed policy change.

POL-1.A
Marginal Propensity To Consume And Marginal Propensity To Save
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MPC is the fraction of extra income spent; MPS is the fraction saved; together they equal 1.

POL-1.A
Discretionary Fiscal Policy Lags
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Delays occur because recognizing problems, passing legislation, and implementing policy all take time.

POL-1.BPOL-1.B.1
Short-Run Effects Of Fiscal Policy
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Expansionary policy shifts aggregate demand right; contractionary policy shifts it left in the short run.

POL-1.APOL-1.A.6