# Additional_FiscalPolicy-1 - FV = Face Value i = Nominal...

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Government Budget Constraint G +iB – T = B + MB B = Nominal Stock of Government Debt i = Nominal Interest Rate T = Nominal Tax Receipts G = Nominal Government Expenditures MB = Monetary Base

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Pure Fiscal Policy G +iB – T = B No Change in the Monetary Base
Monetize the Debt G +iB – T = MB Fed Buys up the Debt Issued by the Treasury

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Full-Employment Deficit Tax Receipts: 1 t 0 , tY T T P P < < + = Full-Employment Deficit-Surplus: T P - G P
Bond Pricing Two Year Bond: ( 29 ( 29 2 2 B i 1 FV i 1 C i 1 C P + + + + + = P B = Bond Price C = Coupon Payment

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Unformatted text preview: FV = Face Value i = Nominal Interest Rate How The Formula Arises A (1 + i) = A 1 ⇒ A = A 1 /(1 + i) [A (1 + i)](1 + i) = A 2 ⇒ A = A 2 /(1 + i) 2 Automatic Stabilizers a=a,T=T,I=I,G=G,X=X Tax Code: Exogenous Spending Components: T T tY,0 t 1 = + < < Y=a+b(Y-T-tY)+I+G+X Solve for Y: Y-bY+btY=a-bT+I+G+X (1-b(1-t))Y=a-bT+I+G+X a-bT+I+G+X Y= 1-b(1-t) ΔG ΔY 1 ΔY= , = >1 1-b(1-t)ΔG 1-b(1-t) o Compare: 1 1-b(1-t) 1 1-b...
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## This note was uploaded on 04/04/2008 for the course ECON 102 taught by Professor Rossana during the Winter '08 term at University of Michigan.

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Additional_FiscalPolicy-1 - FV = Face Value i = Nominal...

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