Fiscal Policy: Short-Term vs Long-Term Impact and the Importance of Productive Capacity

The video lecture covers fiscal policy, focusing on its impact on economic performance in both the short and long run. It explains expansionary and contractionary fiscal policies, using examples to illustrate their effects on aggregate demand and economic growth. The lecture compares classical and Keynesian views, highlighting the role of spare capacity in determining inflationary impacts. It emphasizes the importance of long run aggregate supply and discusses various fiscal policy initiatives, such as infrastructure and education, in enhancing productive capacity.

What is the primary goal of fiscal policy in the short run?

Explain the difference between expansionary and contractionary fiscal policy.

How does a budget deficit affect economic growth in the short term?

What is the multiplier effect in the context of fiscal policy?

Describe the impact of contractionary fiscal policy on aggregate demand.

What are the inflationary consequences of expansionary fiscal policy in the long run?

How does the classical view of fiscal policy differ from the Keynesian view?

What role does spare capacity play in the effectiveness of fiscal policy?

List some examples of fiscal policy initiatives that can positively impact long run aggregate supply.

Why is it important to consider the long-term effects of fiscal policy on aggregate supply?