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Module Economic Policy and the Aggregate Demand-Aggregate Supply Model odel

20. Module Economic Policy and the Aggregate Demand-Aggregate Supply Model odel. KRUGMAN'S MACROECONOMICS for AP*. Margaret Ray and David Anderson. What you will learn in this Module :. How the AD-AS model is used to formulate macroeconomic policy The rationale for stabilization policy

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Module Economic Policy and the Aggregate Demand-Aggregate Supply Model odel

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  1. 20 ModuleEconomic Policy and the Aggregate Demand-Aggregate Supply Modelodel • KRUGMAN'S • MACROECONOMICS for AP* Margaret Ray and David Anderson

  2. What you will learnin thisModule: • How the AD-AS model is used to formulate macroeconomic policy • The rationale for stabilization policy • Why fiscal policy is an important tool for managing economic fluctuations • Which policies constitute expansionary fiscal policy and which constitute contractionary fiscal policy

  3. Macroeconomic Policy • Self-correction? • Stabilization Policy

  4. Policy in the Face of Demand Shocks • Negative Demand Shocks & Positive Demand Shocks • Why are they bad? • Should policymakers counteract?

  5. Responding to Supply Shocks • Supply shock • Policy dilemma

  6. Fiscal Policy: The Basics

  7. Taxes, Government Purchases of Goods and Services, Transfers, and Borrowing

  8. Taxes, Government Purchases of Goods and Services, Transfers, and Borrowing

  9. The Government Budget and Total Spending • GDP = C + I + G + X - M • The effect of taxes and transfers • Effects on Investment

  10. Expansionary and Contractionary Fiscal Policy • Expansionary Fiscal Policy • increase G • decrease T • increase transfers

  11. Expansionary and Contractionary Fiscal Policy • Contractionary Fiscal Policy • decrease G • increase T • decrease transfers

  12. A Cautionary Note: Lags in Fiscal Policy • Time lags • Recognition lag • Decision lag • Implementation lag • Lags make decision making more difficult

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