|Posted on April 16, 2014 at 11:55 AM|
From the Keynesian perspective, an expansionary fiscal policy is appropriate if the economy is experiencing a recession in the short run. The government can increase spending and/or decrease income taxes to shift aggregate demand to the right. This will increase real GDP, increase the price level, and decrease the unemployment rate.
This No Bull Review video explains the concept of an expansionary fiscal policy and shows you how to graph the policy using the AD/AS model.
AP Macroeconomics Unit 3 AD/AS & Fiscal Policy