econ101fall11lecture12

econ101fall11lecture12 - Fiscal Policy Controversies...

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REQUIRED READING CHAPTER 11, INCLUDING APPENDICES A & B Fiscal Policy Controversies
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What are the Important Fiscal Policy Controversies? • Activism • “Fine-Tuning” v. “Broad-Tuning” • Spending v. Tax Policies • Supply-Side Economics • Obama Stimulus Package
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Fiscal Policy Activism Fiscal Instruments Model: (, , , , , , ,) , , , ) do so o o o ds YD P C I A G T R T X t YS P W Z T E K YY   
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Recession: Use Expansionary Policy 1 st Step
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Recession: Use Expansionary Policy 2 nd Step
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Trade-offs: Expansionary Policies Social Benefit: Social Cost:
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High Prices: Use Contractionary Policy 1 st Step
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High Prices: Use Contractionary Policy 2 nd Step
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Trade-offs: Contractionary Policies Social Benefit: Social Cost:
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Using Fiscal Policy to “Fine-Tune” the Economy • Problems: Difficulty in Predicting precisely the Effects of Fiscal Policy Overshooting the target
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Prediction Problems: An Example • Assume Target is to Increase Y by $300 billion
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econ101fall11lecture12 - Fiscal Policy Controversies...

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