1. Expansionary Fiscal Policy
GDP?
CPI ?
Unemployment ?
Problem?
Solution?
Government –
Expansionary Fiscal Policy
Tools: Decrease Taxes / Increase Govt. spending {Goal?}
Federal Reserve –
Expansionary Monetary Policy
Tools: Decrease Interest rates (increase money supply) {Goal?}
Long term growth trend = 3%

2. Contractionary Fiscal Policy
GDP?
CPI ?
Unemployment ?
Long term growth trend = 3%
Problem?
Solution?
Government –
Contractionary Fiscal Policy
Tools: Increase Taxes / decrease Govt. spending {Goal?}
Federal Reserve –
Contractionary Monetary Policy
Tools: Increase Interest rates (decrease money supply) {Goal?}

3. Who?
Govt. or Fed Reserve
What? (Tools?)
(G spending or taxes [up or down]) or Interest Rates [up or down]
When?

4. Economic Costs of Unemployment
Unemployment keeps society from reaching its PPF
Unemployment = lost output = “GDP Gap” = difference between Potential GDP and Actual GDP

5. Okun’s Law For every 1% unemployment above NRU = 2.5% GDP Gap
The unemployment of 7% created a 3.75% loss of GDP
Actual unemp 7% - 5.5% = 1.5 %
1.5 x 2.5 = 3.75% gap
NRU = 5.5%
Actual unemployment