Principles of Macroeconomics / Unit 14 MAC 1313 short lesson, about 20 seconds
Fiscal Policy Shifts Aggregate Demand
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The idea
Fiscal policy is the deliberate use of spending and taxation to move aggregate demand. Expansionary policy shifts it right to close a recessionary gap; contractionary policy shifts it left to close an inflationary gap.
In practice
The target is the gap between actual output and potential.
Where people slip
Most government spending and taxing is done for reasons other than stabilisation.
Your place on the trail
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