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).