ECON 104 - FINAL EXAM REVIEW 3.pdf - Transcripts of movie Okay hello everyone So let's do the review for the final part of the class That would be and

ECON 104 - FINAL EXAM REVIEW 3.pdf - Transcripts of movie...

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[4/24/13 10:32:09 AM] Transcripts of movie Okay, hello everyone. So let's do the review for the final part of the class. That would be lessons 10, 11 and 12. 11 was pretty much all about fiscal policy, fiscal multipliers. We spent a lot of time looking at the, you know, the expansionary fiscal policy in the Great Recession. We talked a lot about how difficult it is to calculate a multiplier. We talked, saw some pretty pie charts about how the government spends their money as well as how the government receives the revenue. We talked about the multiplier and how it's supposed to work with a Texas example and how income to me, I'm going to spend a portion of it and that's going to be income to someone else. So we went through that multiplier process. And then we, you know, along with our discussions of the Romer paper, we said a little on, we talked a little on the supply side, Barrow article. We went back to the Barrow article, showed a Laffer curve. We showed the, how high the effect of tax rate on capital is in the U.S. and so we talked about how supply siders want to be more friendly to businesses, pretty much lower the cost of production so that they invest in more research and development and of course in the long run, we have a higher productivity, positive shock to the production function. So we went into detail there. We did do the new economy example, how we have this combination of positive supply and demand shocks, right? We also talked about how when we start to get into a more realistic model, how the tax multiplier changes, right? So we learned how it is positively related to the marginal propensity consumed, but we also saw how the multiplier fell; I think it went from 4 to 2.5, when we added a tax rate. And then of course the intuition there is just that when y goes up some of it's going to now leak out in the form of taxes because before it was a lump sum tax, the simpler model, that was independent of income and then once we make it a tax rate of course, the multiplier's going to fall because there's two leakages. One leakage is savings and the other leakage is taxes. And of
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