Economic Stabilization Policies Ch. 15 Mr. Bennett

Vocab you need to understand… Aggregate Supply (AS) The total value of all goods & services that ALL firms would produce. All the supply in the economy Aggregate Demand (AD) The total value of all goods & services demanded All the demand in the economy Macroeconomic Equilibrium Intersection of AD & AS, or the point where aggregate supply & aggregate demand meet.

Aggregate Demand & Supply Curve

Shifts in Aggregate D & S

John Maynard Keynes (Canes) Wrote the General Theory of Employment, Interest, & Money (1936) I used to make my students read a blurb from this…it’s dull Keynes argued that gov’ts should spend money, & even take on debt, to help correct an economic recession or depression Conversely, government should save money during a successful period to prevent inflation. Keynesian Economics is Demand Side Policy

Demand Side Policy An economic policy designed to lower unemployment by stimulating an economy via consumers. Through increased gov’t spending & decreased taxation… Increase aggregate demand (the total value of all goods & services demanded for an economy/country). Temporary federal deficits (spending more than you have) are unfortunate but necessary Fiscal Policy is the federal gov’ts attempt to influence or stabilize the economy thru taxing & gov’t spending

Supply Side Policies Please read pages 423-425 of your textbook I want you to try & write very brief notes as you read, maybe a summary sentence for each section or paragraph. Take your time here… Key Terms: (concepts you want to put in your notes) De-Regulation Supply Side Policies Limitations pg. 425 Main Goal: Know the differences in Demand vs. Supply Side Policy The chart on page 423 or 435 will give you the info.

Supply-Side Policy Designed to stimulate the economy by increasing production… stimulate output & lower unemployment rather than stimulating demand. Directly benefits businesses (versus Demand side is directly benefits consumers) Less Gov’t involvement – De-Regulation By decreasing gov’t regulation business are able to increase production, thus raise production which will then lead to expansion of the business aka hire more workers (which lowers unemployment & puts money in the pockets of consumers).

Fiscal Policies Summarized Demand Side Policy: Supply Side Policy: Stimulate economy thru increasing consumption (demand) for goods & services Introduced by Keynes Cut taxes &/or increase Gov’t spending to put more money in people’s hands Which they will then spend (demand) Businesses increase output (supply) to meet the growing demand Stimulate economy through businesses (suppliers) Cut taxes &/or Gov’t regulations for businesses to increase production (supply) Businesses invest & grow; creating more jobs, people work/earn more money, then spend (consumption/demand) Stimulate output & lower unemployment rather than stimulating demand

Types of Fiscal Policy pg. 430 Discretionary: A policy that someone must choose to implement Ex: Build a new highway (it doesn’t build itself) Declining usage: Congress to see the problem, approve solution, then implementation, & finally building (so traffic might be congested for years before the problem is solved -_- Passive: Automatically implemented, does NOT require special action to go into effect. Ex: Unemployment or Social Security Benefits Structural: Designed to strengthen the economy in the long run Ex: Reforms to Social Security & welfare to make them more effective in the long run.

Time to read Open your book to page 431 Read the “Rise of Monetary Policy” This provides good (recent) insight on the implementation of Monetary & Fiscal Policy The only other term you want to familiarize yourself with from this section is: Council of Economic Advisors Advise the president President may or may not do what they advise based on public opinion