Fiscal Policy

Tuesday April 12, 2011 – Periods 1, 5, 7                                                                Wednesday April 13 – Period 2

The two problems that destabilize the economy are unemployment and inflation. The federal government uses monetary and fiscal policies to stabilize and keep the economy healthy. The fiscal policy approach to stabilization involves taxation and government spending policies. John Maynard Keynes, whose ideas became known as Keynesian theory, believed that the government should intervene in an economic recession to stimulate demand. Keynesian economists think that a central problem during a recession is reduced demand. In contrast, supply-side economists see supply as the focus for economic stimulus. Supply-side economists think tax cuts stimulate private investment and employment.