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Chapter 30 - Fiscal Policy

Chapter 30 - Fiscal Policy - Expansionary fiscal policy AD...

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30 CHAPTER FISCAL POLICY
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The Federal Budget Tax revenues: personal income taxes, social insurance taxes, corporate income taxes, and indirect taxes. Personal income taxes followed by social insurance taxes are the two largest revenue sources. Expenditures: transfer payments, purchases of goods and services, and debt interest. Transfer payments are the largest expenditure, and are sources of persistent growth in expenditures.
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The Federal Budget
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Federal Debt Source: http://www.pgpf.org/about/nationaldebt/
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Federal Budget
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Federal Budget Figure: Government budget deficits around the world in 2001.
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Fiscal Policy Automatic stabilizers Recession: taxes fall, transfer payments rise, and the deficit grows. Expansion: taxes rise, transfers fall, and deficit shrinks.
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Fiscal Policy and Prices
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Unformatted text preview: Expansionary fiscal policy AD shifts right. Fiscal Policy and Prices Fiscal Expansion at Potential GDP Figure: Expansionary fiscal policy at full employment. Fiscal Policy and Prices Long-run. Real GDP equals potential GDP. Change in AD changes the wage rate. SAS curve shifts. Fiscal Policy - Limitations Fiscal policy can be used to help stabilize the economy in the short-run. But…. Legislative process is too slow to permit policy actions to be implemented when needed. Supply-Side Effects of Fiscal Policy Fiscal policy influences economic growth by changing the incentives to work, save, invest, and innovate. These incentives work similarly to those in the labor market – ie., reduced taxes provide greater incentive to work....
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