ECO 1102 Lecture Notes - Lecture 12: Unemployment Benefits, Fiscal Multiplier, W. M. Keck Observatory
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ECO 1102 Full Course Notes
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Scale that needs to be balanced= government (use fiscal policy) and central bank (marginal policy) Can counteract decrease in ad: the government can spend more or tax less, often called keynesian economy policy, the expansionary policy increases aggregate demand. Positive economic shocks may cause the economy to expand too rapidly. Contractionary policy can counteract increases in ad: the government can spend less or tax more, the contractionary policy decreases aggregate demand, output and price levels decrease. Information, formulation and implementation lags can reduce the effectiveness of such policy: discretionary policy may be useful when automatic stabilizers are unsuccessful in correcting the economy. For example: consider what happens when someone hires a builder to construct a deck for ,000. This decision adds ,000 to the national gdp: the builder may take his family on a ,000 vacation that he couldn"t have afforded before he built your deck.