assign5 - Intro Macro N. Sheflin ASSIGNMENT 5 NOTES...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
n t r o M a c r o N . S h e f l i n ASSIGNMENT 5 NOTES Short-Run Keynesian Fiscal Policy, and a bit more about Consumption, Saving, Investment and the algebra of the Keynesian model. You will also work on your resume and do some econometrics – estimate a consumption function. Note that we will NOT be developing or using the 45 degree line diagram (aka Keynesian Cross) which is a ‘cute’ way of showing the simultaneous solution of C=f(Y) and Y=f(C). and demonstrates the multiplier. It can be used to derive the aggregate demand curve. It is much more effort to explain and use this than it is worth – this is a case where a few words are better than a picture (but feel free to read and understand it). Work on your resume (see below) . In addition to having one when the President offers you a position, it will show you if you are doing the right things in college ( see below ). More on advisement And do the Consumption Function Estimation Assignment (in Resources/Assignments) Syllabus has been slightly revised – please download/read new one posted in sakai. READING Rittenberg Chapter 12 (and skim 13 and 14 – you are NOT responsible for the Aggregate Expenditure model or most of the graphs in these chapters, nor most of the algebra; you are responsible for basic definitions and concepts re consumption and investment and multiplier) Mankiw’s (2008 and 2009) pieces http://www.nytimes.com/2008/11/30/business/economy/30view.html malink Fiscal Policy (2009) http://www.frbsf.org/publications/economics/letter/2009/el2009-20.html - ignore the expectations discussion. Focus on multipliers and facts about the fiscal stimulus package. Some basic Federal Budget facts http://useconomy.about.com/od/fiscalpolicy/tp/US_Federal_Budget.htm (and much more than you want to know or read: http://www.brookings.edu/papers/2008/0110_fiscal_stimulus_elmendorf_furman.aspx ) OUTLINE AND KEY POINTS read carefully before and after reading the textbook chapters (note this follows chapter 7 then 6) KEYNESIAN FISCAL POLICY Key idea- if private demand (C+I+NX) is too low, Government can replace it by G (or perhaps by encouraging C through tax cuts). Basically, increases in government expenditures (not transfer payments) increase aggregate demand directly and thus output in the SR (long-run issues later). Decreases in personal taxes, increase disposable income (Y-T), which increases consumption and aggregate demand and output. Both of these imply increases in the government budget deficit (G-T) which is generally not a concern in recessions – that is, the extra spending (or reduced revenue) is financed by borrowing from the public o If the economy were at Y1, below full-employment or potential output, an increase in G or a decrease in T would shift agg demand to AD2 and result in a new equilibrium at a with Y. o
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/09/2011 for the course ECON 103 taught by Professor Lin during the Spring '08 term at Rutgers.

Page1 / 7

assign5 - Intro Macro N. Sheflin ASSIGNMENT 5 NOTES...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online