Unit 3.6·Macroeconomics

Effectiveness of Fiscal Policy

Demand Management (Fiscal Policy)

AO3

Syllabus requirement

Includes strengths (targeted spending, deep recession effectiveness) and limitations (crowding out, debt sustainability, political constraints, time lags).

Assessment objectives
AO3 Synthesis and Evaluation

Summary

This topic evaluates how well fiscal policy achieves macroeconomic goals such as economic growth, stable inflation and low unemployment, by examining practical constraints on government spending and taxation. Key limitations include political pressures, various time lags, the sustainability of public debt, and (for HL) the crowding-out effect, all of which reduce how effectively fiscal policy can change aggregate demand and real activity.

Real-world examples for this unit