EXAM III Review print - Samara Jaclyn Geller ECON103 Spring...

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Samara Jaclyn Geller ECON103 Spring 2017 Exam III Review 1Fiscal Policy: studies government spending and taxing policies and how those policies impact the macroeconomy oGov. spending has the power to shift the AD curveàGov. controls G+T therefore it can influence the AD curveàchanging: taxes//gov spending Federal Reserve: changes money supply and interest rates, impacting the AD curve oMain policy tool//Monetary policy Government activities: spending and taxing oPolitical element: one party disagrees with others policy (Democrat VS. Republican) oNeed to consider government spending as an economic viewpoint—rise above the politity oNeed to consider where the true economic problems are Government fiscal policy—the facts oFiscal policy changes the AD curve §Government work to balance budget àG=T §Balanced budget has net expansionary effect àa multiplier attached to Gov. spending ࠵?"> ࠵?"àthere is a small simulative effect because of difference in K §budget is rarely balanced àG>T : more spending than tax revenue àcreates budget deficit §balanced budget: G=T §Budget Deficit: G>T (AD -) §Budget Surplus: G<T (AD Contraction ¯) Budget Deficit: G > T àExpands AD curve // tax money is left over which creates budget surplus oInjection G > T leakage oGovernment pumping more money into the economy than what they haveàweak economy with high unemployment and potential to have a recession oNet effect: expands AD curve because of multiplier àpushes AD to rightàexpansionary effect oPolicy prescription: PL-// RGDP-// Unemployment ¯§First response: move right along the AS curve àstrengthen economy àincrease employment àslight inflation -§In the long run: cannot stay above full employment àmove left along AS curve to lower unemployment // slight inflation occurs §Don’t look at LR because economy suffers shocks commonlyàgenerally before economy hits LR line it will hit another shock Another phase of the SR Customarily for SR pops to occur §We assume economy moves in popsàanalogy: LR is like a magnet—economy strives to get there, SR knocks the economy out of place **Focus on SR** §Most circumstances economy will rarely reach the LRàthis is why analysis is done on SR curve vs LR curve Budget Surplus: G < T àContracts AD curve oInjection G < T Leakage oGovernment sucking more $ out of economy than pumping in àdecrease in AD=Contraction in macroeconomy àa strong economy with high inflation levels oPolicy prescription: PL¯// RGDP¯àcan be a good thing! **High inflation occurs The Graph of: RGDP, G, T, Deficits, YBB, Yfe, Surpluses**DRAW GRAPH AND EXPLANATION** Automatic Stabilizers: increase tax revenues as economy improves o* Draw graph//explanation * gov. spending model explains role of automatic stabilization process oG: gently ¯sloping line in correspondence to RGDP àgov spending is inverse related to RGDP §Why: bad economy = low levels of RGDP = unemployment gap is large
Samara Jaclyn Geller ECON103 Spring 2017

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