Principles of Macroeconomics / Unit 18 MAC 1730 short lesson, about 20 seconds
Which Policy for Which Gap
Captions available
The idea
A recessionary gap calls for expansion: buy bonds, cut taxes, raise spending. An inflationary gap calls for contraction: sell bonds, raise taxes, cut spending. Both work by shifting aggregate demand.
In practice
Which instrument to use is a political question, and the model does not answer it.
Where people slip
Neither instrument can push output past potential for long.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
Something wrong in this lesson? Flag it · Sources for Principles of Macroeconomics