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Fiscal Policy, Money, Automatic Stabilizers Demand-Side Policies Designed to increase or decrease total demand Fiscal Policy Government’s attempt to stabilize the economy through taxing and government spending. Keynesian Economics Set of actions designed to lower unemployment by stimulating aggregate demand. Created by John Maynard Keynes in 1936. Keynes created the output-expenditure model: C+I+G+(XM) Keynes argued that the government was the only thing big enough to change the budget deficit through changing their spending. Automatic Stabilizers Programs that automatically trigger benefits if changes in the economy threaten income. 3 Main Stabilizers Unemployment insurance Federal entitlement programs Progressive income tax Supply-Side Policies Policies designed to stimulate output and lower unemployment by increasing production rather than demand. Supply-side policies are opposite from Demand-side policy (Keynesian Economics) Functions of Money Medium of exchange: something accepted by everyone as payment for goods and services Measure of value: a common denominator that can be used to express worth Store of value: allows purchasing power to be saved until needed. Characteristics of Money Portability Durability Divisibility Scarcity