econ4.3.08

econ4.3.08 - 1. Crowding Out 2. Lags 1. Crowding Out...

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April 17, 2008 07/05/2008 13:56:00 Pegs Keynes vs. Classics Keynesian Fiscal Policy Countercyclical Deficits Critiques Crowding Out Lags FIGURE I Keynesian Fiscal Policy Expansionary Fiscal Policy G T
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when the economy is too “slow” Contractionary (Restrictive) Fiscal Policy G T when the economy is “overheating” FIGURE 2 Question: What happens if we increase G AND decrease T? Keynesian Prescription During downturn: Budget Deficit Increase AD, speed up economy During upturn: Budget Surplus Decrease AD, slow down economy But: Where do the funds come from? Critiques of Keynesian Fiscal Policy
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Unformatted text preview: 1. Crowding Out 2. Lags 1. Crowding Out EXAMPLE: Start: G=0 Now: G to $50 billion * But, no new taxes (new deficit) Demand for loans Start Now G = 0 G 1 = $50 billion S = $250 billion S 1 = $275 billion R = 4% R 1 = 5% I = $250 billion I 1 = FIGURE 4 Net Changes: G I C Total 2. Lags A. Recognition B. Implementation C. Impact Keynesian Answer: Automatic Stabilizers 1. Progressive Income Taxes 2. Corporate Profit Taxes 3. Unemployment Insurance 4. Welfare Payments 07/05/2008 13:56:00 07/05/2008 13:56:00...
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This note was uploaded on 02/07/2011 for the course ECON 2020 taught by Professor Coppock during the Spring '08 term at UVA.

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econ4.3.08 - 1. Crowding Out 2. Lags 1. Crowding Out...

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