Economics 100B - 17 (3-13-07)

Economics 100B - 17 (3-13-07) - Economics 100B Professor...

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Economics 100B Professor Steven Wood 3/13/07 Lecture 17 ASUC Lecture Notes Online (formerly Black Lightning) is the only authorized note-taking service at UC Berkeley. Please do not share, copy or illegally distribute these notes. Our non-profit, student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. Sharing or copying these notes is illegal and could end note taking for this course ANNOUNCEMENTS Re-grades have been completed. You can pick them up after class. Two people received a considerable increase; the rest of the re-grades averaged about one extra point. LECTURE Fiscal Policy Fiscal policy is deliberate changes in government spending and/or tax rates in order to achieve a desired income or unemployment level. Budget Arithmetic G = G T = tY Budget Balance (BB) = T – G which is tY – G In order to know what the budget balance is, we need to know our equilibrium income. Income level of Y0 represents a budget deficit. Income level Y1 represents a budget balance. Income level Y2 represents a budget surplus. Our equilibrium income determines our budget balance. We can determine our equilibrium income from our IS-LM model. Whether a certain income generates a surplus or a deficit depends on our balanced budget line.
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ASUC Lecture Notes Online Economics 100B 3/13/07 Sharing or copying these notes is illegal and could end note taking for this course 2 Example: Xo Increases Anytime equilibrium changes for any reason, the budget balance will automatically change as well. But what happens with a deliberate change? Deliberate Changes: Increase in G Our balanced budget line will shift down. Our vertical intercept is –G. When G increases, this shifts our curve further down. First the budget balance will get worse (A to
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Economics 100B - 17 (3-13-07) - Economics 100B Professor...

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