Fiscal Policy

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  • Created by: ViralJZ
  • Created on: 18-05-15 19:05

Definition - Decisions made by the government on its expenditure, taxation and borrowing to influence the economy, usually to stabilise output at Y-Bar.

Analysis - Expansionary Fiscal Policy is when the gap between G and T widens in order to increase Aggregate Demand. G is a component of AD and decreasing T causes C and I to increase.

Contractionary Fiscal Policy is when the gap between G and T closes in order to decrease Aggregate Demand

Automatic Stabilisers - Effects by which government expenditure adjusts to offset the effects of recession and boom without the need for active intervention. If G > T because of a recession which means that welfare payments are high and income tax is low then a cyclical defecit…

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