| John Kenneth Galbraith Barack Obama Fiscal policy (gov’t taxing and spending) can stimulate the economy and (AD) in downturns Aggregate Demand: total demand for goods and services within a specific market or economy at a given overall price level and in a given period; GDP Fight unemployment and keep income levels high so an economy is at its “productive capacity” Productive Capacity: maximum output that an economy can sustain over a period without increasing inflation. It reflects the ability of an economy to produce goods and services based on the available resources, technology, and labor force. The General Theory (1936) Franklin D. Roosevelt Full employment leads to a “multiplier effect” multiplier effect: phenomenon where an increase in spending (such as government spending) leads to a greater increase in economic output or GDP. This effect occurs because initial spending creates income for consumers and businesses, which in turn leads to further spending and investment, thus multiplying the initial impact on the economy. Automatic stabilizers and social welfare programs keep the economy stable and promote economic recovery Depressions and Recessions can last indefinitely Consumer demand (Aggregate Demand or AD) drives the macroeconomy John Maynard Keynes C (consumer spending) +I (investment/business spending) + G (government spending) = GDP
| Producers and Suppliers (AS) drive the macroeconomy Give producers incentives to produce through business tax cuts and deregulation The Laffer Curve (showing tax rates reduce producer output at a certain point) should guide federal tax policy Ronald Reagan Fiscal policy (gov’t taxing and spending) crowds out private investment spending and leads to gov’t debt/deficits De-regulation and limited government spending promote economic growth and economic recovery
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