Chapter 11 Summary
, Macroeconomics for Today
Fiscal policies relate to the spending, taxing and borrowing activities of the
The goal of fiscal policy is a non-inflationary, full
employment output level.
Fiscal policies may be either discretionary
fiscal policies may emphasize shifting either the AD schedule or the AS
Keynesians believe that the primary impact of discretionary fiscal
policy is on the aggregate demand schedule.
Supply-side economists believe
that the primary impact of discretionary fiscal policy (especially tax rate
reductions) is on the aggregate supply schedule
Keynesian discretionary fiscal policy relies on changes in G (tax collections
constant), changes in tax collections (government expenditures constant), or
combinations of both
changes in taxes and changes in government expenditures
to move the economy to a non-inflationary full employment output level.
multiplier for changes in G (tax collections constant) is equal to the reciprocal of
the MPS (that is, 1/MPS, see text, p. 266).
The multiplier for changes in taxes, G
constant, is equal to -MPC/MPS or, equivalently, (1- the government
expenditures multiplier, as noted in the text, p. 268).
The balanced budget
multiplier is equal to 1, as explained in the text, p. 270.
In the AD-AS model, Keynesian fiscal policies are designed to shift the AD
The impact of these policies depends in part on the shape of the AS
The steeper is the AS schedule, the less effective will shifts of the AD
schedule be in terms of impacting the level of real GDP.
That is, the steeper is
the AS schedule, the more will increases in aggregate demand be dissipated by
increases in prices rather than increases in real output (that increases
employment and reduces the unemployment rate).
See problems 10, 11, and