Introduction to Fiscal Policy

Fiscal Policy

By Shannon Lane

Key concepts and skills from this topic:

• Goal of Fiscal Policy influencing Macroeconomic Goals. 

• Impact of contractionary and expansionary fiscal policies on aggregate demand, real GDP, inflation and employment. 

• Operation and calculation of the spending multiplier effect 

• Supply-side fiscal policy impact on the macroeconomic goals.

• Impact of budget deficit and surpluses on government debt levels.

• Effectiveness of fiscal policy as a tool for achieving macroeconomic goals.

Open Ended

What impact will contractionary fiscal policy have on unemployment?

Fiscal Policy

Fiscal policy: the use of government spending and taxation to influence the nation's economic growth, employment and price level.

Expansionary Fiscal Policy action occurs when the government increases spending and/or lowers tax rates to boost AD.

Expansionary Fiscal Policy

Contractionary Fiscal Policy action occurs when the government decreases spending and/or raises tax rates to decrease AD.

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ContractionaryFiscal Policy

Multiple Choice

What is contractionary fiscal policy?

• A strategy to stabilize the economy by increasing demand.
• Contractionary fiscal policy is a government strategy to reduce spending or increase taxes to lower economic demand.
• A method to increase government spending and decrease taxes.
• A policy aimed at promoting economic growth through tax cuts.

Multiple Choice

What is expansionary fiscal policy?

• A method to reduce government spending and increase taxes.
• A government strategy to stimulate economic growth through increased spending and/or tax cuts.

• A strategy to control inflation by decreasing public expenditure.
• A policy aimed at balancing the national budget through austerity measures.

Multiple Choice

What type of fiscal policy is shown in this graph?

• Expansionary

• Contractionary

Multiple Choice

What type of fiscal policy is shown in this graph?

• Expansionary

• Contractionary

Open Ended

What impact will expansionary fiscal policy have of on price stability?

Open Ended

What impact will contractionary fiscal policy have on unemployment?

Draw

Draw a diagram showing expansionary monetary policy.

Draw

Draw a diagram showing contractionary fiscal policy.