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AS Macroeconomics: Fiscal policy and the effectiveness of fiscal policy

Fiscal policy: the taxation and spending decisions of a government.

Key aim ­ influence aggregate demand (AD)

Government spending is a component of AD

Tax ­ e.g. income tax, VAT

Income tax ­ direct tax and a…

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Economic stability and fiscal policy

Government can use discretionary fiscal policy or allow automatic stabilisers to operate.

Discretionary fiscal policy used when a government actively influences AD by changing
expenditure or tax.

Automatic stabilisers: forms of government spending and taxation that change automatically
to offset fluctuations in…

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consumption, as this affects the size of the multiplier effect ­ low multiplier effect ­ lower
impact on AD.

S ­ Sustainability of government spending ­ creates a hole in government
finances, forced to borrow ­ this accrues interest for the gov, unlikely that they'll be able…

Comments

davidsalter

A 2 page summary of fiscal policy. It lacks diagrams and analysis but good for criticisms of fiscal policy.

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