FP+-+F11 - Fiscal Policy Fiscal Policy Key Components Key...

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Unformatted text preview: Fiscal Policy Fiscal Policy Key Components Key Components Government Purchases Government Purchases Eco 301 - Fall 2011 Key Component Key Component Taxes Taxes Eco 301 - Fall 2011 Key Component Key Component Deficit Deficit Eco 301 - Fall 2011 Paying for the Budget Deficit Paying for the Budget Deficit Eco 301 - Fall 2011 Interest on Debt Interest on Debt Eco 301 - Fall 2011 Budget Deficit Budget Deficit • Budget Deficit FBDef = G-T T= tY t – tax rate • FBDef = G-T = G-tY – Graph • Intercept = G • Slope = -t FBDef Y Y b Eco 301 - Fall 2011 G Y 1 Slope=-t Budget Deficit Budget Deficit • Budget Deficit cross axis at Y where G=T • Below Y b Budget deficit • Above Y b Budget surplus FBDef Y Y b Eco 301 - Fall 2011 G Y 1 Deficit Surplus Government Spending Government Spending and Budget Deficit and Budget Deficit • Short Run – G↑ Deficit ↑ – Y↑ T↑ Deficit ↓ – Overall Deficit ↑ FBDef Y Eco 301 - Fall 2011 G 1 Y G Y 1 Tax Changes Tax Changes and Budget Deficit...
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FP+-+F11 - Fiscal Policy Fiscal Policy Key Components Key...

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