Keynesian Fiscal Policy and the Multiplier

INTRODUCTION

Today we will study the policies favored by Keynesians to stabilize the macroeconomy. Click here to download a PowerPoint on this topic (Chapter 34 Notes Page).

Mini-lecture: Fiscal Policy, Negative/Positive Output Gaps, and the Multiplier

NOTE: The lecture and PowerPoint refer to recessionary gaps and inflationary gaps. The AP curriculum now refers to these as negative output gaps and positive output gaps respectively.

HOMEWORK

Assignments: Read Krugman (Modules 20 and 21) and watch the following videos.

ASSESSMENTS AND ACTIVITIES

Formative Assessment (MCQ's): You will take a formal assessment during class. The assessment will consist of multiple-choice questions and one FRQ from an old AP Exam. Doing the problem of the day and ensuring that you understand it will help you prepare for today's formative assessment and help to ensure that you understand the concepts in this lesson.

Problem of the Day:

1. Define the following terms: unemployment and fiscal policy.

2. Explain why Keynesians believe that recessions begin and persist and why fiscal policy is necessary in remedying them.

3. Use the ideas of neoclassical economists (Monetarists) and classical economists (Austrians) to evaluate the theory you explained in #2 (is it right or wrong?).