Vocabulary Focus. Discretionary fiscal policy Expansionary fiscal policy Contractionary fiscal policy Increase government spending Decrease government

Discretionary fiscal policy

Expansionary fiscal policy	Contractionary fiscal policy
Increase government spending	Decrease government spending
Decrease taxes	Increase taxes
Increase government spending and taxes equally	Decrease government spending and taxes equally

The fundamental purpose of fiscal policy is to eliminate unemployment or inflation. When recession exists, an expansionary fiscal policy is in order. This entails increased government spending or lower taxes, or a combination of the two. In other words, if the budget is balanced at the outset, fiscal policy should move in the direction of a government budget deficit during a recession or depression.

Conversely when demand-pull inflation stalks the land, a restrictive or contractionary fiscal policy is appropriate. A contractionary policy is composed of decreased government spending, or higher taxes, or a combination of these two policies. Fiscal policy should move toward a surplus in the government’s budget when the economy is faced with the problem of controlling inflation.

Ex. 1. Which preposition? Complete each sentence with a suitable preposition.

1. Companies invest ….. new equipment that will increase production.

2. The government can use its spending and taxing programs to reduce the demand ….. goods and services.

3. A tax increase reduces the demand ….. goods and services and relieves the pressure ….. prices.

4. The overall level of economic activity depends ….. effective demand – that is, total spending by individuals, businesses, and government.

5. The government takes ….. more ….. taxes or spends less.

6. The economy is faced ….. the problem ….. controlling inflation.

Ex. 2. What kind of movement do the verbs below describe? Match them to the symbols. Then compare your answers with a partner. (Use some symbols more than once.)

decline	gain	drop	increase	rocket	plummet
double	fall	halve	level off	triple	recover
decrease	fluctuate	improve	peak	rise	zoom

Ex. 3. Match the following Russian common collocations with their English equivalents:

A	B
1) собирать налоги	a) fiscal policy
2) дискреционная фискальная политика	b) aggregate demand
3) совокупный спрос	c) take in taxes
4) фискальная политика	d) discretionary fiscal policy
5) стабилизировать экономику	e) to reduce the demand for goods and services
6) потребительский спрос	f) to depend on effective demand
7) ликвидировать безработицу и инфляцию	g) to stabilize the economy
8) сократить спрос на товары и услуги	h) government spending
9) стимулирующая фискальная политика	i) consumer spendings
10) дефицит федерального бюджета	j) consumer demand
11) зависеть от платежеспособного баланса	k) expansionary fiscal policy
12) государственные расходы	l) to eliminate unemployment or inflation
13) потребительские расходы	m) income tax
14) подоходный налог	n) federal budget deficit

Ex. 4. Choose the words with opposite meaning from two columns and arrange them in pairs.

A	B
1) cut	a) collective
2) exogenous	b) contraction
3) expansion	c) demand
4) flexible	d) endogenous
5) individual	e) increase
6) nominal	f) poverty
7) private	g) public
8) save	h) real
9) supply	i) rigid
10) wealth	j) spend

Ex. 6. Make the following words negative by using one of the following prefixes:

de-

dis-

im-

in-

un-

1) … accelerating	4) …natural
2) … intended	5) …stabilize
3) …prove	6) …effective
7) …desirable	10) …perfect
8) … stable	11) …predictable
9) … efficiency	12) …voluntary

Comprehension

Ex. 1. Complete the sentences.

1. Sometimes the economy zooms ….

2. But there have also been periods ….

3. Until the 1930's, the government …

4. Policy aimed at ….

5. Keynes maintained that governments ….

6. If aggregate income is too low ….

7. If aggregate income is too high ….

8. Expansionary and concretionary fiscal policies are ….

9. The fundamental purpose of fiscal policy ….

10. A contractionary policy is composed of ….

11. Monetarists question whether ….

Ex. 2. Comment on the following issues.

1. What periods of business activity are mentioned in the text?

2. What happens to an economy during a boom?

3. How can the government influence the demand for goods and services?

4. Who invented fiscal policy? What kind of policy is it?

5. How do contractionary and expansionary fiscal policies differ?

6. What did economists blame Keynesian policies for?

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