10-3-07 - Government got money for borders Money went to...

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Chapter 9: Aggregate Demand Keynesian Model Inflation – too much AD – to get out – Decrease AD Raise Interest Rates Recession – too little AD – to get out – Increase AD Lower Taxes John Maynard Keynes British Living in Depression o No one could self correct o Laissez Faire not working Three Major Changes o Deflation P goes Down o Producing a lot less Q goes way down o Unemployment goes way up Keynesian Model o Demand driven Keynesian Revolution o Paradox of thrift C Decreases I decreases ( I is spending that businesses do on capital) Thrift is good at tough times but it makes things worse Keynes said people should spend in order to get out of recession Recession Natural thing for consumers to not buy as much Natural thing for businesses to not buy/invest as much Inventory – important indicator on how sales are doing o Government Spending Increase (Public Works) or Lower Taxes Prior to 1968 there was no income tax
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Unformatted text preview: Government got money for borders Money went to military roads • + Revenues – Expenditures = Balance o > Surplus o < Shortage / Deficit • Debt – accumulation of amount overspent • Governments Spend o Subsidies + -T > G GDP = C + I + G + X – M Fiscal (public) deficit is OK! Keynesian 3 rd Thing Governments can run budget for deficit. • Budget – how much going to take from people and how much going to spend Financing Deficit – when government spends more than they have One Year: If you have fiscal deficit and you sell bonds Debt Next Year: Sell more bonds Increase Debt 2005 – Bush – “2008 deficit will be reduced by 40%” Reducing the fiscal deficit is unpopular. Two ways to reduce deficit: • Cut taxes • Raise government spending Fiscal deficits are to stimulate the economy He never said deficits are okay always!...
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