1. USG economic policy and AD/AS Kahoots Review

2. Module Economic Policy and the Aggregate Demand- Aggregate Supply Model odel 20

3. What you will learn in this Module : How the AD-AS model is used to formulate macroeconomic policy The rationale for stabilization policy Why fiscal policy is an important tool for managing economic fluctuations Which policies constitute expansionary fiscal policy and which constitute contractionary fiscal policy

4. Self-correction? Stabilization Policy-reduce severity of recessions Macroeconomic Policy Keynesian Economics

5. Policy in the Face of Demand Shocks Negative Demand Shocks (recession…unemployment …Yp falls) & Positive Demand Shocks (unemployment falls but…inflation…Yp up) Why are they bad? Should policymakers counteract?

6. Responding to Supply Shocks Supply shock Neg AS (inflation…unemploym ent) Policy dilemma (no good options)

7. Fiscal Policy: The Basics

8. Taxes, Government Purchases of Goods and Services, Transfers, and Borrowing

10. The Government Budget and Total Spending GDP = C + I + G + X - M The effect of taxes and transfers Effects on Investment

11. Expansionary and Contractionary Fiscal Policy Expansionary Fiscal Policy increase G decrease T increase transfers

12. Expansionary and Contractionary Fiscal Policy Contractionary Fiscal Policy decrease G increase T decrease transfers

13. A Cautionary Note: Lags in Fiscal Policy Time lags Recognition lag Decision lag Implementation lag Lags make decision making more difficult