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Fiscal Policy, Screen Shot 2022-04-20 at 12.21.51 AM, AD left shift,…

- - - - The economy is growing at dangerously high rates, thus this strategy is being utilized to stabilize it. Governments use contractionary fiscal policy to reduce government expenditure or raise taxes. Hopes of stopping excessive output or decreasing asset prices in their most basic form.
    - - The economy would not be able to grow at its full potential. Fiscal expansionary policy is sometimes used to increase consumption and make the economy more stable during recessions or economic downturns to aid economic growth.
  - - - Assists in reducing the high inflationary booms in the cycle.
    - - It helps reduce recessions and it further eases the arrival to long-term growth in the cycle
  - - - It reduces inflation as governments reduce their spending in order to reduce the money supply and AD, resulting in lower production which refers to a decrease in output (AD).
    - - Inflation rises as a result of expansionary fiscal policy. As AD increases, price levels rise as well, as indicated in the graph. Price levels have been steadily rising on average. Prices rise when fiscal policy works to increase demand by spending more, resulting in more output and higher prices.
  - - - There is usually an increase of NET EXPORTS
    - - THE NET EXPORTS normally fall, lowering aggregate output
  - - - Fiscal policy is used to constrict the economy by lowering aggregate demand, resulting in reduced output, increased unemployment, and lower price levels.
    - - CAUSES OF UNEMPLOYMENT
        
        Structural unemployment: When the laborer is not skilled for the job. If they are skilled in engineering and the only job available is a job in finance they are unable to take the job as they are not skilled for that job
        
        frictional unemployment: When you leave your job to find a new job. The time period between the two is frictional unemployment
        
        seasonal: when there is unemployment due to a change in season
        
        cyclical unemployment: AD decreases and a left shift occurs. This is because consumer spending decreases meaning less need of production so the firms cut back on that needing less labour.
      - fiscal policy helps cyclical unemployment to increase AD
      - Fiscal policy can lead to an increase in AD and a rise in real GDP. Increased economic growth will raise demand for employees, resulting in more jobs and a reduction in unemployment.
- - - - Lowering CORPORATE taxes increase investment which then increases AD
      - Lowering CORPORATE taxes increase investment which then increases AD
      - Increase spending to improve public service to increase AD
  - - - CUT in spending to improve public service to decrease AD
      - INCOME taxes increases which decreases disposable income which the decreases AD
      - CORPORATE taxes increase so investment decreases which then decreases AD