Principles of Macroeconomics / Unit 14 MAC 1318 short lesson, about 20 seconds
The Limit of Fiscal Policy
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The idea
Fiscal policy can move output toward potential. It cannot push output past potential for long, because beyond that point extra demand meets a supply limit and raises the price level instead.
In practice
The gap is the target, and it is also the ceiling.
Where people slip
Demand policy also cannot restore jobs in a sector that has permanently shrunk.
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