5 Steps to a 5 AP Macroeconomics 2019

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KEY IDEA

IN THIS CHAPTER

Summary: The model of AD and AS is a useful mechanism for looking at how

the macroeconomy can be deliberately expanded, or contracted, by the

government. Fiscal policy measures include government spending and tax

collection to affect economic output, unemployment, and the price level. We

use graphical analysis to show how fiscal policy attempts to move the economy

to full employment and also discuss some of the ways in which fiscal policy is

less effective than predicted by theory. This chapter concludes with a discus-

sion of economic growth and productivity, and how policy might affect growth.

Key Ideas

✪ Fiscal Policy

✪ Budget Deficits and Crowding Out

✪ Economic Growth

✪ Productivity and Supply-Side Policy

10.1 Expansionary and Contractionary Fiscal Policy

Main Topics: Expansionary Fiscal Policy, Contractionary Fiscal Policy, Deficits and Surpluses,

Automatic Stabilizers

This section of the chapter uses AD and AS to illustrate how fiscal policy can work in

theory. Fiscal policy stresses the importance of a hands-on role for government in manipu-

lating AD to “fix” the economy. Difficulties in fiscal policy and the supply-side perspective

are addressed in the following section.

Fiscal Policy, Economic

Growth, and Productivity

KEY IDEA

10

CHAPTER