ECO 120 Macroeconomics Week 7. Fiscal Policy Lecturer Dr. Rod Duncan. Topics. Definition of fiscal policy How fiscal policy works Limitations to fiscal policy Crowding out Government debt. Fiscal policy.
ECO 120 MacroeconomicsWeek 7
Dr. Rod Duncan
Budget deficit = G – T
In a recession, current output is below the natural or potential rate.
We need policies to shift the AD curve right:
Increasing government spending
Cutting taxes to increase disposable Y.
In a boom, current output is above the natural or potential rate.
We need policies to shift the AD curve left:
Decreasing government spending
Raising taxes to decrease disposable Y.
Y = C + I + G + NX
B / Y