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Alistair Courage - Macroeconomics Assignment 1 Macroeconomic factors and the firm - Broadside 1. (a) Inflation Between 1945 and the end of the 1960s the primary tool used to control the economy was fiscal policy; this was during the Keynesian era and Keynesians still believe that fiscal policy coupled with reasonably steady interest rates is the right approach to take. Fiscal policy is concerned with government expenditure and taxes; the theory is that if you decrease government expenditure and increase taxes this will steady a booming economy and prevent inflation from escalating out of control, lessening the effects of 'overheating' - this is known as deflationary fiscal policy. The reverse of this is used when an economy is experiencing the symptoms of recession - increasing government expenditure and decreasing taxes gives the economy a helping hand and is known as expansionary fiscal policy. In the 1970s political and economic attitudes changed to bring about an...

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