AP Macroeconomics / Unit 3: National Income and Price Determination
3.8 Fiscal Policy
Notes
Government changes spending or taxes.
- Expansionary (more G, lower taxes) fights recessions.
- Contractionary (less G, higher taxes) fights inflation.
- Lags and political pressures can limit effectiveness.
Practice
To close a recessionary gap, fiscal policy should:
Shift AD right.
Contractionary fiscal policy:
Cooling the economy.
Who carries out fiscal policy in the US?
Spending and taxes.
Ready for more? Take the Unit 3 test.