What this deck covers
This deck focuses on Short Run Fiscal Actions, giving you a quick way to review the definitions, rules, and examples that matter most for AP Macroeconomics.
AP Macroeconomics Flashcards: Short Run Fiscal Actions
Study Short Run Fiscal Actions in AP Macroeconomics with focused flashcards that help you recognize the idea, recall the key rule, and apply it in practice-style prompts.
AP Macroeconomics
Short Run Fiscal Actions
0 mastered0 still learning
0% Complete
01
QUESTION
1/ 70
Which policy might increase interest rates?
Tap card or press Space to flip
01
ANSWER
Contractionary monetary policy. Used to reduce inflation and slow economic growth.
How well did you know it?
Got it!
Still Learning
Card 1 / 70
Space to flip · ← / → to move · once flipped, → Got it · ← Still learning
How to use these flashcards
Work through these flashcards in short sessions. Try to answer each prompt before flipping the card, then revisit any cards you miss until the explanation feels automatic.
All flashcards
Flashcard 1: Which policy might increase interest rates?
Answer: Contractionary monetary policy. Used to reduce inflation and slow economic growth.
Flashcard 2: What occurs when the central bank buys government bonds?
Answer: Increases money supply. Buying bonds injects money into the banking system.
Flashcard 3: What occurs when the central bank buys government bonds?
Answer: Increases money supply. Buying bonds injects money into the banking system.
Flashcard 4: What does a budget deficit imply?
Answer: Government spending exceeds revenue. Government must borrow money to finance the shortfall.
Flashcard 5: What is the impact of a lower interest rate?
Answer: Increased borrowing and spending. Lower rates reduce cost of borrowing for businesses and consumers.
Flashcard 6: What action increases the money supply?
Answer: Lowering the discount rate. Cheaper borrowing for banks increases lending to public.
Flashcard 7: What action increases the money supply?
Answer: Lowering the discount rate. Cheaper borrowing for banks increases lending to public.
Flashcard 8: What does a budget deficit imply?
Answer: Government spending exceeds revenue. Government must borrow money to finance the shortfall.
Flashcard 9: What is the equation for the spending multiplier?
Answer: 1−MPC1. Shows how initial spending creates multiplied economic impact.
Flashcard 10: What is the primary goal of contractionary monetary policy?
Answer: To reduce inflation by decreasing money supply. Higher interest rates discourage borrowing and spending.
Flashcard 11: What is a potential drawback of expansionary fiscal policy?
Answer: Increased budget deficit. Government borrowing increases when spending exceeds revenue.
Flashcard 12: Identify a tool used in monetary policy.
Answer: Open market operations. Other tools include discount rate and reserve requirements.
Flashcard 13: Identify an example of an automatic stabilizer.
Answer: Unemployment benefits. Payments increase during recessions, providing economic stimulus.
Flashcard 14: Define expansionary fiscal policy.
Answer: Increases in government spending or tax cuts to stimulate the economy. Boosts aggregate demand during recessions or slow growth periods.
Flashcard 15: What is the effect of government spending on aggregate demand?
Answer: Increases aggregate demand. Direct injection of money into the economy boosts total demand.
Flashcard 16: What occurs when the central bank sells government bonds?
Answer: Decreases money supply. Selling bonds removes money from the banking system.
Flashcard 17: What is fiscal policy?
Answer: Government adjustments in spending and taxation. Government tools to influence economic activity through budget decisions.
Flashcard 18: What happens to aggregate demand when taxes are increased?
Answer: Aggregate demand decreases. Higher taxes reduce disposable income and consumer spending.
Flashcard 19: What is the impact of a lower interest rate?
Answer: Increased borrowing and spending. Lower rates reduce cost of borrowing for businesses and consumers.
Flashcard 20: What is crowding out?
Answer: When government borrowing reduces private investment. Government borrowing competes with private sector for funds.
Flashcard 21: What is the role of automatic stabilizers?
Answer: They automatically adjust spending and taxes based on economic conditions. Provide economic stability without legislative action.
Flashcard 22: Identify a limitation of monetary policy.
Answer: Time lags in policy effects. Effects take months to fully impact the economy.
Flashcard 23: What happens to aggregate demand when taxes are decreased?
Answer: Aggregate demand increases. Lower taxes increase disposable income and consumer spending.
Flashcard 24: What is the impact of a higher interest rate?
Answer: Decreased borrowing and spending. Higher rates increase cost of borrowing, reducing economic activity.
Flashcard 25: What is crowding out?
Answer: When government borrowing reduces private investment. Government borrowing competes with private sector for funds.
Flashcard 26: What action is part of contractionary fiscal policy?
Answer: Raising taxes. Reduces aggregate demand to control inflation.
Flashcard 27: Define contractionary fiscal policy.
Answer: Decreases in government spending or tax increases to slow the economy. Reduces aggregate demand to cool an overheated economy.
Flashcard 28: What is the primary goal of expansionary monetary policy?
Answer: To lower unemployment and increase economic growth. Achieved by increasing money supply and lowering interest rates.
Flashcard 29: How do central banks use the discount rate?
Answer: To influence the lending activity of commercial banks. Rate charged to banks borrowing directly from the Fed.
Flashcard 30: What action decreases the money supply?
Answer: Raising the reserve requirement. Higher requirements force banks to hold more reserves.
Flashcard 31: What is a potential drawback of expansionary fiscal policy?
Answer: Increased budget deficit. Government borrowing increases when spending exceeds revenue.
Flashcard 32: What action decreases the money supply?
Answer: Raising the reserve requirement. Higher requirements force banks to hold more reserves.
Flashcard 33: What is an open market operation?
Answer: Buying or selling government securities to influence the money supply. Fed's most frequently used monetary policy tool.
Flashcard 34: What occurs when the central bank sells government bonds?
Answer: Decreases money supply. Selling bonds removes money from the banking system.
Flashcard 35: Identify an example of an automatic stabilizer.
Answer: Unemployment benefits. Payments increase during recessions, providing economic stimulus.
Flashcard 36: What does a budget surplus imply?
Answer: Government revenue exceeds spending. Government can pay down debt or increase spending.
Flashcard 37: What is fiscal policy?
Answer: Government adjustments in spending and taxation. Government tools to influence economic activity through budget decisions.
Flashcard 38: What is the equation for the tax multiplier?
Answer: −1−MPCMPC. Tax multiplier is negative and smaller than spending multiplier.
Flashcard 39: Identify a benefit of expansionary fiscal policy.
Answer: Stimulates economic growth. Increases aggregate demand, leading to higher GDP and employment.
Flashcard 40: What is the role of automatic stabilizers?
Answer: They automatically adjust spending and taxes based on economic conditions. Provide economic stability without legislative action.
Flashcard 41: Which policy might increase interest rates?
Answer: Contractionary monetary policy. Used to reduce inflation and slow economic growth.
Flashcard 42: What is the short-run impact of increased government spending?
Answer: Increases aggregate demand. Direct government purchases boost economic activity immediately.
Flashcard 43: What is the marginal propensity to save (MPS)?
Answer: The fraction of additional income that is saved. MPC + MPS always equals 1 in the economy.
Flashcard 44: Identify a limitation of fiscal policy.
Answer: Political constraints and time lags. Legislative approval and implementation delays affect timing.
Flashcard 45: What is the liquidity trap?
Answer: A situation where monetary policy becomes ineffective at low interest rates. Interest rates near zero limit further monetary stimulus.
Flashcard 46: What is the impact of a higher interest rate?
Answer: Decreased borrowing and spending. Higher rates increase cost of borrowing, reducing economic activity.
Flashcard 47: Identify a limitation of monetary policy.
Answer: Time lags in policy effects. Effects take months to fully impact the economy.
Flashcard 48: Define expansionary fiscal policy.
Answer: Increases in government spending or tax cuts to stimulate the economy. Boosts aggregate demand during recessions or slow growth periods.
Flashcard 49: Identify a limitation of fiscal policy.
Answer: Political constraints and time lags. Legislative approval and implementation delays affect timing.
Flashcard 50: What is monetary policy?
Answer: Central bank actions that manage money supply and interest rates. Federal Reserve tools to control economic conditions through money.
Flashcard 51: What is the marginal propensity to consume (MPC)?
Answer: The fraction of additional income that is spent on consumption. Key component in calculating multiplier effects.
Flashcard 52: What happens to aggregate demand when taxes are increased?
Answer: Aggregate demand decreases. Higher taxes reduce disposable income and consumer spending.
Flashcard 53: What is the impact of fiscal policy on interest rates?
Answer: Can increase interest rates if financed by borrowing. Government borrowing increases demand for loanable funds.
Flashcard 54: Identify a benefit of expansionary fiscal policy.
Answer: Stimulates economic growth. Increases aggregate demand, leading to higher GDP and employment.
Flashcard 55: What is the impact of fiscal policy on interest rates?
Answer: Can increase interest rates if financed by borrowing. Government borrowing increases demand for loanable funds.
Flashcard 56: How do central banks use the discount rate?
Answer: To influence the lending activity of commercial banks. Rate charged to banks borrowing directly from the Fed.
Flashcard 57: Which policy uses tax cuts as a tool?
Answer: Expansionary fiscal policy. Both expansionary fiscal and monetary policy can use this approach.
Flashcard 58: What is the marginal propensity to consume (MPC)?
Answer: The fraction of additional income that is spent on consumption. Key component in calculating multiplier effects.
Flashcard 59: Which policy uses tax cuts as a tool?
Answer: Expansionary fiscal policy. Both expansionary fiscal and monetary policy can use this approach.
Flashcard 60: What is monetary policy?
Answer: Central bank actions that manage money supply and interest rates. Federal Reserve tools to control economic conditions through money.
Flashcard 61: What does a budget surplus imply?
Answer: Government revenue exceeds spending. Government can pay down debt or increase spending.
Flashcard 62: Identify a tool used in monetary policy.
Answer: Open market operations. Other tools include discount rate and reserve requirements.
Flashcard 63: What action is part of contractionary fiscal policy?
Answer: Raising taxes. Reduces aggregate demand to control inflation.
Flashcard 64: What is the effect of a decrease in the reserve requirement?
Answer: Increases money supply. Lower requirements allow banks to lend more money.
Flashcard 65: What happens to aggregate demand when taxes are decreased?
Answer: Aggregate demand increases. Lower taxes increase disposable income and consumer spending.
Flashcard 66: What is the equation for the tax multiplier?
Answer: −1−MPCMPC. Tax multiplier is negative and smaller than spending multiplier.
Flashcard 67: What is the equation for the spending multiplier?
Answer: 1−MPC1. Shows how initial spending creates multiplied economic impact.
Flashcard 68: What is the marginal propensity to save (MPS)?
Answer: The fraction of additional income that is saved. MPC + MPS always equals 1 in the economy.
Flashcard 69: What is the federal funds rate?
Answer: The interest rate banks charge each other for overnight loans. Key benchmark rate that influences all other interest rates.
Flashcard 70: What is the primary goal of contractionary monetary policy?
Answer: To reduce inflation by decreasing money supply. Higher interest rates discourage borrowing and spending.