Macroeconomics › Section Q · Government budgets and fiscal policy › Topic Q.4
Using fiscal policy against recession and inflation
When spending in the economy falls short or runs too hot, Congress and the President can change taxes and spending to push aggregate demand back towards potential GDP. This topic shows how expansionary and contractionary fiscal policy work in the AD/AS model, and how to size them.
In this topic
- What fiscal policy is
- The ideal: demand keeps pace with supply
- Three channels for expansionary policy
- Fighting a recession
- Worked example: closing a recessionary gap
- Taxes or spending?
- Two recent responses
- Fighting inflation
- Worked example: cooling an overheating economy
- Common mistakes to avoid
- Key takeaways
This topic is part of Wuanberri Pro. Checking your access…