Fiscal Policy

Where do you fit into the circular flow model ?

Provide 1 example of how you fit into the Circular flow model.

How does Government impact the circular flow model?

Provide an example of how government impacts the circular flow model.

How do businesses impact the circular flow model? Provide an example.

What is fiscal policy?

Fiscal Policy Fiscal policy is based on the theories of British economist John Maynard Keynes. Also known as Keynesian economics, this theory basically states that governments can influence macroeconomic productivity levels by increasing or decreasing tax levels and public spending. This influence, in turn, curbs inflation (generally considered to be healthy when at a level between 2-3%), increases employment and maintains a healthy value of money. Read more: http://www.investopedia.com/articles/04/051904.asp#ixzz1fbf8jchf

Fiscal Policy can effect the following Aggregate demand and the level of economic activity; The pattern of resource allocation; The distribution of income.

Create your own circular flow model Identify at least one example of how each entity impacts the model. Define fiscal policy