Fiscal and Monetary Policy Actions in the Short-Run
Ava Garcia
3 min read
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Study Guide Overview
This guide covers fiscal and monetary policy, focusing on how they influence Aggregate Demand (AD). It details how the government uses fiscal policy (taxes and spending) and the Federal Reserve uses monetary policy (interest rates, money supply) to stabilize the economy, including addressing recessionary gaps. Graphing AD shifts is emphasized.
#AP Macroeconomics: Fiscal & Monetary Policy - The Night Before 🚀
Hey! Let's get you prepped for the AP Macro exam. This guide is designed to be super efficient, hitting all the key points you need to know, especially about fiscal and monetary policy. Let's dive in!
#Overview: Fiscal vs. Monetary Policy
It's all about keeping the economy on track! We've got two main tools:
- Fiscal Policy: Controlled by the government (Congress & President) through spending and taxes.
- Monetary Policy: Managed by the Federal Reserve (the Fed) using interest rates and the money supply.
Key Point: Both aim to shift Aggregate Demand (AD) to achieve full employment and price stability. Graphing these shifts is crucial for the exam.
#Fiscal Policy Deep Dive
Fiscal policy uses government spending and taxation to influence the economy. Think of it as the government's way of directly affecting the economy.
#Expansionary Fiscal Policy (Recessionary Gap) 📉➡️📈
- Goal: Boost the economy during a recession (high unemployment, low output).
- Tools:
- Increase government spending (G) ⬆️
- Decrease taxes (T) ⬇️
- Impact: Increases Aggregate Demand (AD), leading to higher real GDP and income.
Memory Aid: Think of "G.I.T."
- Government Spending Increases and Taxes decrease to boost the economy
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