chap 20 - 12/6/2010 Chapter 20 FISCAL POLICY AND SUPPLYSIDE...

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12/6/2010 1 Chapter 20 FISCAL POLICY AND SUPPLY- SIDE ECONOMICS Fiscal Policy y Fiscal policy = changes in taxes or government spending or borrowing { Can be “expansionary” or “contractionary”
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12/6/2010 2 Three examples of expansionary fiscal policy and its effect on AD y Deficit = G – net taxes 1. G and deficit { no change in net taxes 2. G and net taxes { no change in deficit 3. net taxes and deficit { no change in G Effects of fiscal policy y Two effects of each change in fiscal policy { Direct effec Direct effect Ù Immediate change in C, I, G, or net exports that affects AD { Indirect effect Ù Change in C, I, G, or net exports that affects AD through the financial market only Ù Focus on how changes in interest rates affect AD { Generally assume any direct effects outweigh indirect effects
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12/6/2010 3 Higher government spending financed by borrowing—direct effects y G and deficit (no change in net taxes) { Direct effect Ù Higher government spending increases AD
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This note was uploaded on 02/26/2012 for the course ECON 210 taught by Professor Staff during the Fall '08 term at Purdue University-West Lafayette.

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chap 20 - 12/6/2010 Chapter 20 FISCAL POLICY AND SUPPLYSIDE...

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