EC2013S11_L8

EC2013S11_L8 - ECON2013 Principles of Macro Lecture 8...

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ECON2013 – Principles of Macro Lecture 8 Fiscal Policy
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Today we talk about… 1. Fiscal Policy and A.D. 2. Tax Multiplier 3. Tax-Cuts Vs. Government Spending
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What is fiscal policy?
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Figure: elimination of a recessionary gap Real GDP (Y) Price Level (P) 5,000 6,000 Potential GDP S 0 S 0 B D D F E 100
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Planning Expansionary Fiscal Policy • Expansionary fiscal policy – Raise government purchases – Reduce taxes –Increase transfer payments • To close recessionary gap
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Income Taxes & Consumption Schedule Y = ( A – bT + G+ I ) + bY • Fiscal policy –Government’s plan for spending & taxation • Disposable income (DI = Y-T) – Real GDP (Y) – Taxes (T)
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How tax policy shifts the consumption schedule Figure 1 Real GDP Real Consumer Spending C Tax Increase Tax Cut
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Income Taxes & Consumption Schedule • Tax increase – Consumption schedule shifts downward – Total spending schedule shifts downward –A.D. shifts inward • Tax decrease – Consumption schedule shifts upward – Total spending schedule shifts upward – A.D. shifts outward
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This note was uploaded on 04/08/2011 for the course ECON 2003 taught by Professor Staff during the Spring '11 term at Arkansas.

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EC2013S11_L8 - ECON2013 Principles of Macro Lecture 8...

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