02/ 28/ 16    Fiscal Policy

There are two types of economics:

Classical:-Competition is a good thing.

                  -The invisible hand (means market will fix itself no government needed.)

                  -In the long run, the economy will balance at full employment. 

                  -Trickle down effect (help the rich first and everybody else second.)

                  -The economy is always close to or at full employment. 

Keynesian:  -Competition is not beneficial

                     -AD is the key to saving an economy.

                     -Saving money causes recessions.

                     -Ratchets effects & sticky wages blocked Say's Law.

                     -In the Long Run, we are all dead. 

Two tools of Fiscal Policy: -Taxes, in which the government can increase or decrease

                                             -Spending, in which the government can increase or decrease 

Policy Two Options: -Discretionary Fiscal Policy (action) 

                                   -Expansionary fiscal policy (think deficit)

                                   -Contractionary fiscal policy (think surplus)

                                   -Non-Discretionary Fiscal Policy (no action) 

View this video for a visual and descriptive view of the differences between stablizers: 

http://study.com/academy/lesson/automatic-stabilizers-in-economics-definition-examples.html