3.6.3—Expansionary and contractionary fiscal policy Topic Practice
3.6.3—Expansionary and contractionary fiscal policy Topic Practice
Students practise applying AD/AS diagrams to explain how expansionary or contractionary fiscal policy responds to real-world output gaps and macroeconomic conditions.
How this is tested
- draw an AD/AS diagram with AD shifting right to close a recessionary gap
- explain that spending cuts or tax rises are contractionary and shift AD left
- predict that expansionary fiscal policy lowers cyclical unemployment through higher AD