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.
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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