Course review
Review each learning objective in this topic, then open its concept explanation or question set.
Learning objective
• Fiscal policy uses government revenue and expenditure • Revenue sources include direct taxes, indirect taxes, state-owned enterprise sales, and sale of government assets • Expenditure includes current spending, capital spending, and transfer payments
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Learning objective
• Goals include low stable inflation, low unemployment, long-term growth conditions, reduced business cycle fluctuations, equity in income distribution, and external balance
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Learning objective
• Expansionary fiscal policy can close deflationary or recessionary gaps • Contractionary fiscal policy can close inflationary gaps • Diagram: AD/AS showing expansionary and contractionary fiscal policy in Keynesian and monetarist/new classical models
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Learning objective
• The Keynesian multiplier equals 1 / (1 - MPC) or 1 / (MPS + MPT + MPM) • MPC is marginal propensity to consume; MPS to save; MPT to tax; MPM to import • Calculation [HL]: Keynesian multiplier • Calculation [HL]: effect on GDP from a change in investment, government spending, or exports
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Learning objective
• Constraints include political pressure, time lags, and sustainable debt • Strengths include targeting specific sectors and effective government spending in deep recessions • Evaluation considers effects on growth, unemployment, and price stability
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Learning objective
• Automatic stabilizers include progressive taxes and unemployment benefits • They help moderate business cycle fluctuations without new discretionary policy
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Learning objective
• Crowding out is a constraint on fiscal policy • Diagram: crowding-out effect
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