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October 11 slides part 2

October 11 slides part 2 - Model Y E E CIG C C bTX I I G G...

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Model - (1- ) Y E E C I G C C bTX bTR b t Y I I G G ± ± ± ±
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Assumptions Closed Economy Completely Slack Conditions: Flat AS Curve No Wealth Effects on Consumption
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Expenditure Schedule N Effective Intercept Slope - (1- ) - (1- ) E C I G C bTX bTR b t Y I G C bTX bTR I G b t Y ± ± ± ± ± ± ± ± ± ± ±²²²³²²²´
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Graph: Expenditure Schedule
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Market Equilibrium
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Fiscal Instruments Tools of Fiscal Policy—What the government controls Fiscal Instruments: NB: Government does not control tax revenue , , , G TX TR t TX TX tY ±
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Examples of Fiscal Policies $30 billion increase in military spending $30 billion increase in Social Security Benefits $30 billion tax cut in autonomous taxes: e.g., $500 per child tax credit (independent of Y) $30 TR TR bill n ' $30 G G bill n ' $30 TX TX bill p '
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Other Examples of Fiscal Policies Reduction in the Marginal Tax Rate Done in Section Meeting
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Increase in Military Spending: G n
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A Tax Cut: TX p
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Increase in Social Security Benefits: TR n
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Qualitative Principle ² ³ ² ³ , , , or all . Called Fiscal Policies , , , or all . Called Fiscal Policies Qualitatively Expansionary Contractionary G TR TX t Y G TR TX t Y n n p p n p p n n p < <
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Quantitative Effects ² ³ Changes in affect
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