Name_________________________________________ Class Period_________
Fiscal Policy Notes
Review
1. What is aggregate demand?
2. If aggregate demand decreases, will this help the economy grow, or will it slow the economy
down? Why?
3. If aggregate demand increases, will this help the economy grow, or will it slow the economy
down?
FISCAL POLICY READING NOTES (pgs. 446-452)
Key Concepts
1. What does the term fiscal mean?
2. Define fiscal policy
3. What are the two goals of fiscal policy?
4. When will the government use expansionary fiscal policy and what is its plan?
5. When is contractionary fiscal policy used and what is its plan?
Discretionary Fiscal Policy
6. What is discretionary fiscal policy?
7. What type of active government responses might be used in discretionary fiscal policy?
Automatic Stabilizers
8. What are automatic stabilizers?
9. What are examples of public transfer payments?
10. How do these public transfer payments automatically stabilize by increasing aggregate demand
in a recession?
11. How do public transfer payments automatically stabilize the economy by decreasing aggregate
demand when they economy is growing too fast?
12. How do progressive income taxes act as automatic stabilizers during prosperous times?
13. How do progressive income taxes act as automatic stabilizers during a recession?
People make less money, pay less taxes, reduced impact of recession
The Purpose of Fiscal Policy
14. What is expansionary fiscal policy designed to do? (in key concepts section)
15. What is contractionary fiscal policy used to do? (in key concepts section)
Policy 1: Expansionary Fiscal Policy
16. In expansionary fiscal policy, does the government want to increase or decrease aggregate
demand?
17. Expansionary fiscal policy increases/decreases (circle one) government spending and
increases/decreases taxes (circle one)
18. What example of increased government spending does the book use?
19. What taxes might be lowered in expansionary fiscal policy? Why?
Policy 2: Contractionary Fiscal Policy
20. In contractionary fiscal policy, does the government want to increase or decrease aggregate
demand?
21. What is it called when the economy is growing too rapidly and aggregate demand is increasing
faster than supply?
22. Contractionary fiscal policy increases/decreases (circle one) government spending and
increases/decreases taxes (circle one)
23. What examples does the book give of cuts in government spending?
Limitations of Fiscal Policy- Policy Lags
24. Describe the limitations of fiscal policy related to timing issues
Limitations of Fiscal Policy- Political Issues
25. Describe the limitations of fiscal policy related to political issues.
Challenge Questions!!!!
1. Despite what economic advisors say, would a president who is up for reelection be more
inclined to increase taxes or cut taxes?
2. Expansionary fiscal policy involves the use of increased government spending to change
economic conditions. In general, do you think democrats or republicans would be more
supportive of this type of policy?
3. Contractionary fiscal policy involves the use of decreased government spending to
change the economy. In general, do you think democrats or republicans would be more
supportive of this type of policy?