Lecture 25 - Lectures 25 and 26: Course Wrap-Up...

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Unformatted text preview: Lectures 25 and 26: Course Wrap-Up Housekeeping The final is on December 17, 9:00 11:00 a.m. Room numbers: REI 103 (B-LE) and REI 112 (LU-Z) Please double check the Registrars website. You may refer to one 3 x 5 card with your written notes and use a calculator (recommended), but you may not use any other notes or references. Office hours: December 10 and December 15 from 3:00 until there are no more questions, but not later than 6:00 p.m. The room will be ICC 550 (the conference room by the entrance to the Economics Department). For the final, a suggestion . . . You will be asked questions that require that you understand the various curves we have studied (monetary rule, AD, IA, expenditure line, etc.) and how they shift in various circumstances, including in the short run, medium run, and long run. To make sure you understand the EFM, one recommendation is to try to draw the whole model and the graphs that underlie it on your own without looking at the book or the lecture slides. Then think about how the curves shifte.g., to explain booms and busts, and try to do this on your own. By doing this, you should immediately be able to assess if there is something you did not quite understand. Then, you can see me or your TA with any questions, or go back to the text/slides to try to figures things out. The EFM: To think about! Two types of shocks: Price and Aggregate Demand Three different starting positions: At potential GDP, above it, or below it Policy responses, if any: It depends Remaining Material: Fiscal Policy There Are Two Instruments Of Fiscal Policy Spending Policy Tax Policy Fiscal Policy Countercyclical policy is a term used to describe a policy that is designed to offset the fluctuations in the business cycle. Recessions can be countered with tax cuts and increased spending. Over-expansion can be countered with tax hikes and decreased spending. Terminology Discretionary fiscal policy : changes in taxes or spending policy requiring legislative or administrative action by the president or Congress (or prime minister or Parliament). Automatic changes in fiscal policy (as opposed to discretionary changes) called automatic stabilizers . These are automatic changes in taxes or spending that occur over the course of the business cycle and tend to stabilize fluctuations in real GDP. A tax on income is an automatic stabilizer. When the economy is in recession, tax receipts decrease. In a growing economy tax receipts Terminology (continued) Effect of a Change in Government Purchases In the upper panel, spending is increased when the economy is below potential GDP. An increase in government purchases shifts the AD curve to the right, bringing GDP toward potential....
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Lecture 25 - Lectures 25 and 26: Course Wrap-Up...

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