Unit Three - 1 Unit Three Economic Manipulations Governmental Roles(1 stabilize our economy avoid wild in-fluctuation Stabilization Tools John

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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) => one of our economic gods. Laissez Faire : hands off; government leaves economies alone and lets it fluctuate. => conservatives or classicals. Kaynes/Liberal Approach : using stabilization tools to keep economy balanced. 1) Fiscal Tools: (a) Governmental Spending => G (b) tax => t PGDP (potential GDP) AGDP (actual GDP) PGDP = AGDP PGDP > AGDP => recession => Gov goal = increase the actual. PGDP < AGDP => inflation => 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 => gov want to increase GDP increase gov spending => increase GDP recession => lower taxes lower taxes => increases consumption => increases GDP inflation => gov wants to lower GDP decrease gov spending => decrease GDP inflation => increase taxes increase taxes => decrease consumption => decreases GDP Monetary Policies : (money) 1) Money Supply : Recession: increase money supply => consume more => increase GDP Inflation: decrease money supply => consume less => decrease GDP 2) Interest Rate : (i) the price for capitol. Recession: decrease interest rate => increase income => increase GDP Inflation: increase interest rate => decrease income => 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 .

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Unit Three - 1 Unit Three Economic Manipulations Governmental Roles(1 stabilize our economy avoid wild in-fluctuation Stabilization Tools John

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