IB Economics — Demand management: fiscal policy

Key Idea: Topic 3.6 explains how governments use spending and taxation to manage AD, the multiplier effect, and the constraints of budget deficits and national debt.

✅ Core definitions

📊 Types of taxes

🔁 The multiplier effect

In practice, multipliers are typically 1–2, much smaller than formula-predicted values. State this in evaluation.

⚖️ Evaluation and constraints

Distinguish: discretionary fiscal policy (deliberate changes) vs automatic stabilisers (built-in mechanisms that activate without new legislation).