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Unformatted text preview: 1 1  MPC Example: C = 100 + 0.75 ( Y  T ) MPC = 0.75 G Multiplier = 4 25 Suppose: Equilibrium output is 1000. Full employment output is 1200. Multiplier is 4. Full employment output can be attained by increasing government spending by 50. 31 Taxation multiplier: = MPC x ( G Multiplier) = MPC x 1 1  MPC =  MPC 1  MPC 32 Example: C = 100 + 0.75 ( Y  T ) MPC = 0.75 T multiplier =  0.75 / 0.25 =  3. If raise taxes by $1, income falls by $3. 33 What happens if we increase G and T together? G and T rise by same amount Y rises 36 Balanced budget multiplier: G Multiplier + T Multiplier = 1 M P C 1± MPC 1± MPC = 1  MPC = 1 1  MPC Example: If raise G by 10 and T by 10, Y increases by 10. 38 Suppose: Equilibrium output is 1000. Full employment is 1200. Can attain full employment output without increasing deficit by raising G and T by 200....
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This note was uploaded on 07/25/2011 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at Berkeley.
 Fall '08
 MarthOlney
 Fiscal Policy

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