NOTES (3/24/15) - Countercyclical Fiscal Policies

Fighting A Recession

• Policy Name = expansionary
• Taxes = cut
• Gov. Spending = increase
• Budget Result = deficit

• Aggregate Model:
• C should = increase
• G should = increase
• AD should = increase

• Money Market: 
• DM will = increase 
• i should = increase
• Ig on Aggregate Model will = decrease

• Loanable Funds Market: 
• Budget issue will cause-
• S-LF = decrease
• D-LF = increase

Fighting Inflation

• Policy Name = contractionary
• Taxes = increase
• Gov. Spending = decrease
• Budget Result = surplus

• Aggregate Model:
• C should = decrease
• G should = decrease
• AD should = decrease

• Money Market: 
• DM will = decrease 
• i should = decrease
• Ig on Aggregate Model will = increase

• Loanable Funds Market: 
• Budget issue will cause-
• S-LF = increase
• D-LF = decrease