Handout6 - 2. Expansionary Fiscal Policy: Contractionary...

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Lecture 6 Outline Short Run AS-AD Model Increase in AD: Demand-Pull Inflation
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Page 2 of 8 Decrease in AD: Recession and Unemployment Decrease in AS: Cost-Push Inflation
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Page 3 of 8 Increase in AS: Full-employment, Stability Long run equilibrium:
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Page 4 of 8 AD-AS Model Equilibrium in the AD-AS model : Increase in AD: Demand-Pull Inflation GDP Gap: GDP Gap (Equation):
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Page 5 of 8 What is Fiscal Policy? Decrease in AD: Recession and Unemployment Revisited Aggregate Demand Shifters 1. 2. 3. 4. Fiscal Policy: We will consider the following kinds of Fiscal Policy: 1.
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Unformatted text preview: 2. Expansionary Fiscal Policy: Contractionary Fiscal Policy: Page 6 of 8 Multiplier Effect Multiplier Effect: Marginal Propensity to consume: (Change in Revenue) Change in Consumption (MPC=0.50) Total Increase in GDP Increase in Govt Spending Second Round Third Round Fourth Round Multiplier: Change in RGDP: Change in Government Spending Page 7 of 8 Change in Net Taxes Built-in stabilizers Timing Problems 1. 2. 3. Page 8 of 8 Future Policy Reversals Balanced Budget Problems Policy: Better to increase G or reduce T? The USA National Debt...
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This note was uploaded on 01/28/2012 for the course ECON 1102 taught by Professor Someguy during the Spring '07 term at Minnesota.

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Handout6 - 2. Expansionary Fiscal Policy: Contractionary...

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