Concepts
- Fiscal Policy
- Expansionary Fiscal Policy
- Increase Gov’t Spending
- Decrease Taxes
- Contractionary Fiscal Policy
- Decrease Gov’t Spending
- Increase Taxes
- Fiscal Policy’s Impact on AD-AS (Short-Run and Long-Run)
- Impact of Price Level
- Impact on Real GDP
- Multiplier
- Crowding Out Effect
- Fiscal Policy’s Impact on Interest Rates
- Tax Systems
- Regressive Tax System
- Progressive Tax System
- Proportional Tax System
- Automatic Stabilizers
- Progressive Tax System
- Transfer Payments (Unemployment Compensation, Welfare, etc.)
Overview
Fiscal Policy represents what the government can do to try and influence economic activity. The government has two tools of fiscal policy at their disposal: government spending and taxes. During a recession, the government would implement expansionary fiscal policy. They would either increase government spending, decrease taxes, or some combination of the two. During inflation, the government would implement contractionary fiscal policy. They would either decrease government spending, increase taxes, or some combination of the two. It’s important that we understand how fiscal policy impacts the aggregate model as well. Fiscal policy will shift aggregate demand and thus change the price level and RGDP. It’s also important to understand the link between fiscal policy and the crowding out effect along with how interest rates change because of this link. Finally, we will discuss automatic stabilizers. They are an important part of fiscal policy because they provide a balancing out effect for an economy without an act of congress.
Materials
Lecture
Video Coming at Later Date
Quiz
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