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Fiscal Policy ­ Revision Sheet
Controlling the macroeconomy through changes in Government spending and
Taxation levels.
Direct impacts are on AD
Impacts can also affect SRAS
Fiscal policy is now much more used to `fine-tune' the supply side of the economy

Prime Instrument = Government Spending & Taxation Levels


Page 2

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Economic Cycle
Tax Revenues ­ When economy is expanding, amount of tax revenue increases ­ takes
money out of circular flow of income and spending

Welfare Spending ­ Growing economy means that government does not have to spend as
much on welfare benefits (income support and unemployment benefits)

Demand Side…

Page 3

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Supply Side Fiscal Policy
Changes to fiscal policy can affect the supply side of the economy and therefore contribute
to long term economic growth.

Labour market incentives:

Income tax cuts ­ Incentive for more to work
Income tax cuts ­ People may want to work more hours (increased productivity)­




really great notes



A set of notes on fiscal policy that also covers the supply side aspect of fiscal policy. Less on the demand side that might be required for the exam but a good summary.

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