Stimulating times - AS and A2 macroeconomics

A chance to cover a lesson for a colleague meant that I could bring together an AS and an A2 macro group this afternoon and I chose the issue of the Fiscal Stimulus as the basis for the lesson. One of the aims was to see the extent to which A2 students might be prompted to show a deeper understanding of the many issues related to the extraordinary attempts around the world to use fiscal policy as a tool for stabilising confidence, demand, output, investment and jobs during the crisis.

The level of awarness and evaluation expected at A2 is naturally higher. I asked AS and A2 groups to develop a basic word cloud of the economic ideas they associate with the broad issue of a fiscal stimulus. AS students focused on the macro concepts they have been taught such as disposable incomes, spending, confidence, budget deficit, opportunity cost, multiplier effects, jobs, demand, recession. A2 students were more comfortable with bringing concepts to the table such as debt default risk, real interest rates, fiscal multipliers, bond yields, liquidity traps, capital flight, expectations, tax burdens et al.

Our discussion focused on building a coherent economic and social case for using a fiscal stimulus drawing on examples from countries such as the USA, China, Germany, the UK and Australia. Targeted and timely policies have have important effects on the supply-side of the economy and also on distributional and environmental issues. For example tax cuts skewed towards lower-income households and the sizeable proportion of Obama’s fiscal stimulus program that is geared towards investment in green energy and infrastructure.