CLEP Macroeconomics

CLEP Macroeconomics covers the principles of macroeconomic theory, including national income, inflation, and fiscal policy.

National Income and GDPUnemploymentInflation
Fiscal PolicyMonetary PolicyAggregate Demand and Supply
Understanding Economic IndicatorsApplying Macroeconomic PolicyGlobalization and Macroeconomics
Mastering Key FormulasActive Practice with Real DataUsing Process of Elimination
National Income and ...UnemploymentInflationFiscal PolicyMonetary PolicyAggregate Demand and...Understanding Econom...Applying Macroeconom...Globalization and Ma...Mastering Key Formul...Active Practice with...Using Process of Eli...
Advanced Topics

Fiscal Policy

What Is Fiscal Policy?

Fiscal policy is how the government uses its budget—spending and taxation—to influence the economy. It’s a powerful tool for promoting growth, reducing unemployment, and controlling inflation.

Types of Fiscal Policy

  • Expansionary Fiscal Policy: The government spends more or taxes less to boost the economy.
  • Contractionary Fiscal Policy: The government spends less or raises taxes to slow down inflation.

How Does It Work?

Fiscal policy impacts the overall demand for goods and services. For example, more government spending can create jobs and increase consumer spending.

Challenges

Fiscal policy can take time to implement, and predicting its effects isn’t always easy. Political debates often slow down decision-making.

Key Formula

\[Y = C + I + G + (X - M)\]

Examples

  • The U.S. government’s stimulus checks during COVID-19 were an example of expansionary fiscal policy.

  • Raising taxes to cool down an overheating economy is contractionary fiscal policy.

In a Nutshell

Fiscal policy is the government's way of managing the economy through its budget.

Key Terms

Fiscal Policy
Government actions on spending and taxation to influence the economy.
Expansionary
Policies that increase economic activity, like more spending or lower taxes.
Contractionary
Policies that decrease economic activity, like less spending or higher taxes.
Next
Monetary Policy