Stabilization Policies

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Presentation transcript:

Stabilization Policies 15.2

Aggregate Supply and Demand

Fiscal Policy The workings of the federal government in order to influence aggregate demand. h Usually done through taxation and government spending. h How is this different than monetary policy?

GDP What is the GDP equation that we know already? What is the one proposed by John Maynard Keynes? h How do these two differ? h Why do the differ?

Multiplier & Accelerator The multiplier is a measurement of the magnitude a change in investment has on the actual economy. The U.S. multiplier is about 2, what does that mean? The accelerator is the change in investment spending as a result of a change in the total spending. Why might this be the case?

The Government The government can do 1 of two things: Spend money Reduce Taxes Give me an example of how they could use solution 1 and how they could use solution 2. What does it work mathematically?

Automatic Stabilizers Programs that automatically trigger benefits if changes in the economy threaten income. Preapproved by past legislation. What are some examples?

Limitations What are the limitations of using fiscal policy to affect aggregate demand?

Supply Side Economics These are economic policies used to affect the supply side of the aggregate supply/demand graph. Also obtained through fiscal policy.

Laffer Curve