Econ-End of Semester

Econ-End of Semester - Chapter 13 13A: Increase in...

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Chapter 13 13A: Increase in government spending: I government spending I total spending I someone’s income and in their consumption spending Bigger I spending than initial I due to increased consumption spending I aggregate demand by multiplied amount of spending Upward pressure on prices; I output FINAL: I real GDP, I employment, I prices Increase in income taxes: D disposable income D consumption spending D total spending Larger D than the initial D due to additional D in consumption spending D aggregate demand by multiplied amount of spending Downward pressure on prices; D output FINAL: D real GDP, D employment, D prices Decrease in transfer payments: Creates a D in disposable income; thus same as income tax increase Easy summaries: Government spending o I: I total spending and aggregate demand o D: D total spending and aggregate demand Income tax rates o I: D disposable income and total spending o D: I disposable income and total spending Capital gains tax rates o D: I after-tax returns from investments Corporate profits tax rates o D: I after-tax income given to corporations Transfer payments: o I: increase total spending o D: D total spending o Work like taxes by changing disposable income Recommending fiscal policy For recessions (too little spending): I government spending, D in income taxes, or I in transfer payments will cause a multiplied effect on total spending: will return to level of full employment
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o If done naturally, it would avoid inflation but may take longer due to difficulty of getting wages to fall. Can be much better adjust naturally. For inflations (too much spending): D government spending, I income taxes, or D transfer payments will cause a multiplied D in total spending: return to full employment by putting downward pressure on prices. o If done naturally, would work through increased inflation. Worse naturally. The effects of a temporary change of tax are less than permanent changes on both current
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Econ-End of Semester - Chapter 13 13A: Increase in...

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