Work through the list without notes. If you cannot do a statement, follow its link, then come back. Guide = study guide; Practice = practice questions.
Understanding
- I can name the tools of fiscal policy and of monetary policy, and say who uses each. (Guide: “Two levers on one economy”)
- I can choose a fiscal action and a monetary action that together close a recessionary gap, and a pair that closes an inflationary gap. (Guide: “Choosing the direction: match the gap”; Practice Q1, Q6(b))
- I can explain why policies that push in the same direction have a certain effect on AD but an uncertain effect on the interest rate. (Guide: “What a combined policy does”; Practice Q4)
- I can explain why policies that push in opposite directions have a certain effect on the interest rate but an uncertain effect on AD. (Guide: “What a combined policy does”; Practice Q2, Q7(b))
Calculation
- I can calculate the combined shift in AD by multiplying each action by its own multiplier and adding the results. (Guide: Worked example 2; Practice Q3, Q7(a))
- I can calculate the minimum fiscal action needed to close a gap when a monetary action already shifts AD by a known amount. (Guide: Worked examples 1 and 2; Practice Q5)
- I can explain, with numbers, why a tax change must be larger than a spending change to have the same effect on AD. (Guide: Worked example 2(c); Practice Q5(d), Q7(c))
Graphs and reasoning
- I can show a combined policy closing a gap on a correctly labelled AD–AS graph, with the new price level. (Guide: Figure 1; Practice Q6(a), (c))
- I can show on a money market graph how fiscal expansion changes money demand and the nominal interest rate. (Guide: Figure 2; Practice Q6(d))
- I can identify the open market operation a central bank would use to hold the interest rate steady during a fiscal expansion. (Guide: “Showing the interest rate on a money market graph”; Practice Q6(e))
All ticked? Move on to Topic 5.2: the Phillips curve study guide, or return to the course roadmap.