This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: 1 1  MPC Example: C = 100 + 0.75 ( Y  T ) MPC = 0.75 G Multiplier = 4 25 Suppose: Equilibrium output is 1000. Full employment output is 1200. Multiplier is 4. Full employment output can be attained by increasing government spending by 50. 31 Taxation multiplier: = MPC x ( G Multiplier) = MPC x 1 1  MPC =  MPC 1  MPC 32 Example: C = 100 + 0.75 ( Y  T ) MPC = 0.75 T multiplier =  0.75 / 0.25 =  3. If raise taxes by $1, income falls by $3. 33 What happens if we increase G and T together? G and T rise by same amount Y rises 36 Balanced budget multiplier: G Multiplier + T Multiplier = 1 M P C 1 MPC 1 MPC = 1  MPC = 1 1  MPC Example: If raise G by 10 and T by 10, Y increases by 10. 38 Suppose: Equilibrium output is 1000. Full employment is 1200. Can attain full employment output without increasing deficit by raising G and T by 200....
View Full
Document
 Fall '08
 MarthOlney
 Economics, Fiscal Policy

Click to edit the document details