Macro 7 - Monetary and Fiscal Policy in the Keynesian SR...

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Monetary and Fiscal Policy in the Keynesian SR Model (chapt 7D, 10A+B) Impact of Taxation on Aggregate Demand -Extra taxes lower our disposable incomes, and lower dispoasble incomes tend to reduce our consumption spending. Fiscal Policy Multipliers -The government expenditure multiplier is the increase in GDP resulting from an increase of $1 in government purchases of goods and services *Government purchases of goods and services are an important force in determining output and employment. In the multiplier model, if G increases, output will rise by the increase in G times the expenditure multiplier. Government purchases therefore have the potential to increase or decrease output over the business cycle. Impact of Taxes *Tax changes ar ea powerful weapon in affecting output. But the tax multiplier is smaller than the expenditure multiplier by a factor equal to the MPC Tax multiplier = MPC x expenditure multiplier Chapter 10A+B The Essential Elements of Central Banking -A central bank is a government organization that is primarily
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Macro 7 - Monetary and Fiscal Policy in the Keynesian SR...

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