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Unformatted text preview: 1 Unit Three : Economic Manipulations : Governmental Roles : (1) stabilize our economy; avoid wild in-fluctuation. Stabilization Tools : John Keynes (pre WWII) =&gt; one of our economic gods. Laissez Faire : hands off; government leaves economies alone and lets it fluctuate. =&gt; conservatives or classicals. Kaynes/Liberal Approach : using stabilization tools to keep economy balanced. 1) Fiscal Tools: (a) Governmental Spending =&gt; G (b) tax =&gt; t PGDP (potential GDP) AGDP (actual GDP) PGDP = AGDP PGDP &gt; AGDP =&gt; recession =&gt; Gov goal = increase the actual. PGDP &lt; AGDP =&gt; inflation =&gt; Gov goal = decrease the actual. GDP = C + I + G + ( X M ); Y = income Yd = Y t Yd = C + SAVE Y t = C + SAVE Y t SAVE = C GDP = ( Y t SAVE ) + I + G + ( X M ) GDP = Y [+ I + G +X][ t SAVE M] inj = leakages then, GDP = Y recession =&gt; gov want to increase GDP increase gov spending =&gt; increase GDP recession =&gt; lower taxes lower taxes =&gt; increases consumption =&gt; increases GDP inflation =&gt; gov wants to lower GDP decrease gov spending =&gt; decrease GDP inflation =&gt; increase taxes increase taxes =&gt; decrease consumption =&gt; decreases GDP Monetary Policies : (money) 1) Money Supply : Recession: increase money supply =&gt; consume more =&gt; increase GDP Inflation: decrease money supply =&gt; consume less =&gt; decrease GDP 2) Interest Rate : (i) the price for capitol. Recession: decrease interest rate =&gt; increase income =&gt; increase GDP Inflation: increase interest rate =&gt; decrease income =&gt; decrease GDP Post WWII : 1945- Harry Truman: Post war inflation : too much consuming....
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This note was uploaded on 04/17/2008 for the course ECON 2105 taught by Professor Barilla during the Spring '08 term at Georgia Southern University .
- Spring '08