#11.01 -- Fiscal Policy (5.05)

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Video #11.01 Fiscal Policy

Fiscal Policy:

Fiscal Policy Chapter Learning Outcomes Define fiscal policy and clarify the difference between automatic and discretionary fiscal policy. Explain the government’s role in the economy according to the Keynesian view of economics and distinguish how it differs from the classical view of economics. Describe and graphically illustrate how discretionary fiscal policy can be used to shift aggregate demand and regulate the economy from a Keynesian view of economics.

Fiscal Policy:

Fiscal Policy What is fiscal policy? Changes in government expenditures and/or taxes to achieve particular economic goals, such as low unemployment, stable prices, and economic growth.

Fiscal Policy:

Fiscal Policy Automatic Fiscal Policy – Changes in government expenditures and/or taxes that occur automatically without (additional) congressional action. Discretionary Fiscal Policy- Deliberate changes of government expenditures and/or taxes to achieve particular economic goals. Expansionary Fiscal Policy – Increases in government expenditures and/or decreases in taxes to achieve particular economic goals. Contractionary Fiscal Policy – Decreases in government expenditures and/or increases in taxes to achieve particular economic goals.

Expansionary Fiscal Policy for a Recessionary Gap:

Expansionary Fiscal Policy for a Recessionary Gap Expansionary Fiscal Policy: ↑G or ↓T or both. Rightward shift in the aggregate demand curve from AD 1 to AD 2 . Economy moves to natural level of Real GDP at Q N.

Contractionary Fiscal Policy for an Inflationary Gap:

Contractionary Fiscal Policy for an Inflationary Gap Contractionary Fiscal Policy: ↓G or ↑T or both. Leftward shift in the aggregate demand curve from AD 1 to AD 2 . Economy moves to natural level of Real GDP at Q N.

Fiscal Policy:

Fiscal Policy Chapter Learning Outcomes Define fiscal policy and clarify the difference between automatic and discretionary fiscal policy. Explain the government’s role in the economy according to the Keynesian view of economics and distinguish how it differs from the classical view of economics. Describe and graphically illustrate how discretionary fiscal policy can be used to shift aggregate demand and regulate the economy from a Keynesian view of economics.

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