No Bull Economics Lessons

Macroeconomics & Microeconomics Concepts You Must Know

Essential Questions

What is a contractionary fiscal policy?

Posted on April 17, 2014 at 12:00 AM

From the Keynesian economic perspective, a contractionary fiscal policy is appropriate if the economy is experiencing inflation in the short run. The government can decrease spending and/or increase income taxes to shift aggregate demand to the left. This will decrease real GDP, decrease the price level, and increase the unemployment rate.


This No Bull Review video explains the concept of a contractionary fiscal policy and shows you how to graph the policy using the AD/AS model.

You need Adobe Flash Player to view this content.

AP Macroeconomic Unit 3 AD/AS & Fiscal Policy

Categories: AP Macroeconomics, Macro Unit 3 AD/AS and Fiscal Policy