126 ❯
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