Chapter 12 Fiscal Policy

Friday April 1, 2011 – Periods 4 & 8

Today we did a review worksheet over macro graphs. We also began a new unit on stabilizing the economy. Two ways of stabilizing the economy is through fiscal and monetary policies.

Fiscal policy is carried out by the legislative and/or the executive branches of government. It involves the government changing the levels of taxation and government spending in order to influence aggregate demand and therefore the level of economic activity. The three stances of fiscal policy are neutral, expansionary and contractionary. Fiscal policy is said to be neutral when spending is fully funded by tax revenues, tight or contractionary when revenue is higher than spending, and loose or expansionary when spending is higher than revenue.

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