ECON-1010 Chapter Notes - Chapter 10 : Monetary Policy, Aggregate Demand, Potential Output
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ECON-1010 Full Course Notes
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Document Summary
Fiscal policy - changes in government taxes and spending that affect the level of gdp. Can be used to stabilize the economy. Increases in government spending or decreases in taxes will increase aggregate demand and shift the curve to the right. Expansionary policies - government policy actions that lead to increases in aggregate demand. Ex. increasing government spending and cutting taxes. Contractionary policies - government policy actions that lead to decreases in aggregate demand. Ex. decreasing government spending and increasing taxes. The nal shift is larger than the initial increase. Government needs to take this into account when creating scal policy. Stabilization policies - policy actions taken to move the economy closer to full employment or potential output. Dif cult to implement stabilization policies for two reasons. There are lags or delays in stabilization policy. Decision makers are often slow to recognize and respond to changes in the economy.