Demand-Side Polices
 Fiscal Policy: the government’s attempt to stabilize the economy through…
 Policies designed to …
 Derived from Keynesian Economics
Keynesian Economics
 C + I + G + (X-Im) = GDP o Common Belief:
 If there is not enough spending or the Government can intervene to increase AD o o
 indirectly stimulates “C” (consumer spending)

spending,
directly stimulates “G” (government spending)
Expansionary Fiscal Policy
Used to fight


Problem:  AD will  GDP and  PL
….this causes

Contractionary Fiscal Policy
Used to fight


Problem:  AD will  GDP and  PL
….this causes
Limitation of Fiscal Policy
Supply-Side Economics [“Reaganomics”]
 “Best of Both Worlds”  
 Policies designed to …
[rightward shift of the Aggregate Supply Curve]
    Result:
and 
Examples of how Supply-Side Policies would work…
 AS =  PL
(reduces inflation) &
 GDP (reduces unemployment)
All Supply-side polices would…
Limitations of Supply-Side Policies
 