ECON-002 Lecture Notes - Output Gap, Fiscal Policy, Aggregate Demand
Document Summary
Government transfers: payments by the government to households for which no good or service is provided in return. Social insurance programs: government programs (transfer payments) intended to protect families against economic hardship. Government purchases: national defense and education are the biggest categories. The government directly controls g and indirectly affects c and i. Household incomes are affected by taxes and transfers, and business investment is affected by taxes and regulations. So the government can shift the ad curve. Fiscal policy: the use of taxes, government transfers, or government purchases of goods and services to shift the aggregate demand curve. Is either discretionary(expansionary, contractionary) or non discretionary(govt expenditure - transfer payments; or taxes - progressive) Expansionary fiscal policy: fiscal policy that increases aggregate demand. An increase in government purchases of goods and services. Expansionary fiscal policy is extra fuel for the economy. Contractionary fiscal policy: : fiscal policy that decreases aggregate demand. A reduction in government purchases of goods and services.
