1. Economic Stabilization Policies Ch. 15
Mr. Bennett

2. 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.

3. Aggregate Demand & Supply Curve

4. Shifts in Aggregate D & S

5. 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

6. 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

7. 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.

8. 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).

9. 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

10. 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.

11. 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