Chapter 13 Summary - Chapter 13 Summary The government plays a large role in the economy collecting a large share of GDP in taxes and spending a

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Chapter 13 Summary - The government plays a large role in the economy, collecting a large share of GDP in taxes and spending a large share both to purchase goods and services and to make transfer payments, largely for social insurance. Fiscal policy is the use of taxes, government transfers, or government purchases of goods and services to shift the aggregate demand curve. But many economists caution that a very active fiscal policy may in fact make the economy less stable due to time lags in policy formulation and implementation. - Government purchases of goods and services directly affects aggregate demand, and changes in taxes and government transfers affect aggregate demand indirectly by changing households’ disposable income. Expansionary fiscal policy shifts the aggregate demand curve rightward; contractionary fiscal policy shifts the aggregate demand curve leftward. - Fiscal policy has a multiplier effect on the economy, the size of which depends upon the fiscal policy. Except in the case of lump-sum taxes, taxes reduce the size of the multiplier.
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This note was uploaded on 01/24/2012 for the course ECON 2105 taught by Professor Iacopetta during the Spring '08 term at Georgia Institute of Technology.

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