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Principles Of Macroeconomics (ECON12000001) Ch-16 Fiscal Policy

Sandra Watson
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in what ways does the federal budget serve as an automatic stabilizer for the​ economy?

University of Iowa

Principles of Macroeconomics (ECON12000001)

❖ The gov’t can affect the levels of both aggregate demand and aggregate supply through
fiscal policy
❖ Fiscal policy: changes in federal taxes and purchases that are intended to achieve
macroeconomic policy objectives
Refers to the actions of the federal gov’t
❖ Automatic stabilizers: gov’t spending and taxes that automatically increase or decrease
along with the business cycle
Changes in taxes and spending that happens without actions by the gov’t
❖ Discretionary policy: the gov’t takes actions to change spending or taxes
Gov’t cuts taxes in order to increase aggregate demand
❖ Categories of federal gov’t expenditures: interest on the nation debt, grants to state and
local gov’t, and transfer payments



Principles Of Macroeconomics (ECON12000001) Ch-16 Fiscal Policy

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