Lecture 22 Notes

Lecture 22 Notes - 10/30/09 1 ECN 211 Macroeconomic...

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Unformatted text preview: 10/30/09 1 ECN 211 Macroeconomic Principles L22: Fiscal Policy 10/30/09 2 Fiscal Policy What is fiscal policy? A tool that allows the government to guide the economy along an expansionary (real GDP increasing ) or contractionary (real GDP falling ) path. It involves manipulating government spending (G) and taxation (T) Initially going to assume that all taxation is lump-sum taxation. i.e. does not very with income 10/30/09 2 Fiscal Policy What is fiscal policy? A tool that allows the government to guide the economy along an expansionary (real GDP increasing ) or contractionary (real GDP falling ) path. It involves manipulating government spending (G) and taxation (T) Initially going to assume that all taxation is lump-sum taxation. i.e. does not very with income . 10/30/09 3 Recap: Eliminating a GDP Gap GDP Gap = potential real GDP actual real GDP Recessionary Gap = GDP gap/ Multiplier Government needs to increase aggregate expenditures and uses the multiplier to boost GDP What are the options available to the government using fiscal policy to boost aggregate expenditures? Fiscal policy and AE How can the government increase AE?...
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This note was uploaded on 03/03/2010 for the course ECN 211 taught by Professor Kingston during the Spring '08 term at ASU.

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Lecture 22 Notes - 10/30/09 1 ECN 211 Macroeconomic...

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