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Unformatted text preview: Fiscal Policy the governments (President and Congress) use of the budget to influence the economy, also known as tax and spend economics. Discretionary Fiscal Policy: The discretionary changing of government expenditures and/or taxes in order to achieve national economic goals Changes in Taxes: Holding all other things constant, a rise in taxes creates a reduction in AD for one of three reasons: (1) it reduces consumption, (2) it reduces investment, or (3) it reduces net exports. 1. When the Current Short-Run Equilibrium Is to the Right of LRAS: An increase in taxes will cause AD to shift inward, real GDP and the price level index falls. 2. When the Current Short-Run Equilibrium Is to the Left of LRAS: A decrease in taxes will cause AD to shift outward, real GDP and the price level will rise. Recessionary Gap - The equilibrium gap that exists whenever real GDP per year is less than full-employment real GDP....
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This note was uploaded on 06/06/2011 for the course ECON 101 taught by Professor Dsliva during the Fall '11 term at Moraine Valley Community College.
- Fall '11